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Causal Relationship between Energy Consumption, Economic Growth and CO2 Emissions: A Dynamic Panel Data Approach

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  • Chaido Dritsaki

    (Department of Accounting and Finance, Technological University of Western Macedonia, Kila, Kozani 50100, GREECE)

  • Melina Dritsaki

    (Warwick Medical School, University of Warwick, Coventry, CV47AL, UK)

Abstract

Energy plays an important role in economic development worldwide. The increase of energy consumption showed that CO2 emissions in the atmosphere have increased dramatically, and these lead many scientists to push governments of the developing countries to take action for the formulation of environmental policies. Many studies have attempted to look for the direction of causality between energy consumption (EC), economic growth (GDP) and CO2 emissions mainly on developing countries. This paper, therefore, applies the panel unit root tests, panel cointegration methods and panel causality test to investigate the relationship between energy consumption (EC), economic growth (GDP) and CO2 emissions for three countries of Southern Europe (Greece, Spain, and Portugal) covering the annual period 1960-2009. The FMOLS and DOLS are then used to estimate the long run relationship between the variables. The findings of this study reveal that there is a short-run bilateral causal link between the examined variables. However, in the long run, there is a unidirectional causality running from CO2 emissions to energy consumption (EC), and economic growth (GDP) and a bilateral causality between energy consumption and economic growth. This indicates that energy is a force for economic growth both in short and long run as it is driven from economic growth. Moreover, to face the heterogeneity on the three countries of Southern Europe we use the FMOLS and DOLS estimation methods.

Suggested Citation

  • Chaido Dritsaki & Melina Dritsaki, 2014. "Causal Relationship between Energy Consumption, Economic Growth and CO2 Emissions: A Dynamic Panel Data Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 4(2), pages 125-136.
    • Handle: RePEc:eco:journ2:2014-02-2
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    More about this item

    Keywords

    Energy consumption; Panel cointegration; FMOLS and DOLS Methods. Journal: International Journal of Energy Economics and Policy;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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