The Relationship Between Energy Consumption and GDP: Evidence From a Panel Of 13 Asian Countries

Abstract

This study reexamines the relationship between energy consumption per capita and real GDP per capita for Bangladesh, India, Pakistan, Sri-lanka, Maldives, Nepal, Afghanistan, Bhutan, China, Vietnam, Malaysia, Philippines and Thailand using both panel data causality which is taking into account cross-sectional dependence and heterogeneity among the countries and time series causality tests for the period 1971– 2009. The findings indicate that taking into account cross-sectional dependence has a substantial effect on the achieved results. The conservation hypothesis is supported for Indonesia, Malaysia and the Philippines. Although a bidirectional relation is found in the case of Thailand, since there is no positive effect of energy consumption on GDP. In the pattern of Singapore, the neutrality hypothesis is supported. In addition, the increase in investment and labor force lead to more energy consumption in Indonesia, Malaysia and Thailand. The relationship and causality direction between energy consumption and GDP is an important issue in the fields of energy economics and policies towards energy use. Extensive literatures have discussed the issue, but the array of findings provides anything but consensus on either the existence of relations or direction of causality between the variables. This study extends research in this area by studying the long-run and causal relations between GDP and energy consumption, labour and capital based on the neo-classical one sector aggregate production technology mode using data of energy consumption and real GDP for ASEAN from the year 2014 to 2017. The analysis is conducted using advanced panel estimation approaches and found no causality in the short run while in the long-run, the results indicate that there are bidirectional relationships among variables. This study provides supplementary evidences of relationship between energy consumption and GDP in ASEAN.