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Revisiting the impact of energy prices on economic growth: Lessons learned from the European Union

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  • Dagoumas, Athanasios S.
  • Polemis, Michael L.
  • Soursou, Symeoni-Eleni

Abstract

This study aims to re-investigate the long-run relationship among energy prices and economic growth within the periphery of the European Union. We rely on the Engle–Granger methodology to estimate a Vector-Error Correction Model. We also employ Variance Decomposition Analysis to estimate the causal effect of energy prices on economic growth. We provide evidence on the conservation hypothesis for the case of real GDP and residential electricity prices, as well as on the growth hypothesis for the case of real output and industrial electricity prices. The residential electricity sector exhibits the highest level of influence, as industrial electricity price and crude oil price “Granger cause” residential electricity prices. We also find signs of the feedback hypothesis concerning final energy consumption and residential electricity price. Lastly, the level of economic growth proxied by real GDP is strongly endogenous in the short-run, whereas shocks from other covariates seem to have a transitory effect.

Suggested Citation

  • Dagoumas, Athanasios S. & Polemis, Michael L. & Soursou, Symeoni-Eleni, 2020. "Revisiting the impact of energy prices on economic growth: Lessons learned from the European Union," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 85-95.
    • Handle: RePEc:eee:ecanpo:v:66:y:2020:i:c:p:85-95
    DOI: 10.1016/j.eap.2020.02.013
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    References listed on IDEAS

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    Cited by:

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    2. Emmanuel E. Okoro & Joseph Echendu & Lawrence U. Okoye & Samuel E. Sanni & Kale B. Orodu & Rita I. Okoro, 2021. "Nigeria Deep Offshore Inland Basin Production Sharing Contract Acts: Evaluating Contractor s Take," International Journal of Energy Economics and Policy, Econjournals, vol. 11(4), pages 97-106.
    3. Evžen Kočenda & Michala Moravcová & Evžen Kocenda, 2024. "Frequency Volatility Connectedness and Portfolio Hedging of U.S. Energy Commodities," CESifo Working Paper Series 10889, CESifo.
    4. Hokey Min, 2022. "Examining the Impact of Energy Price Volatility on Commodity Prices from Energy Supply Chain Perspectives," Energies, MDPI, vol. 15(21), pages 1-16, October.
    5. Zhao, Linhai & Rasoulinezhad, Ehsan, 2023. "Role of natural resources utilization efficiency in achieving green economic recovery: Evidence from BRICS countries," Resources Policy, Elsevier, vol. 80(C).
    6. Anna Komarnicka & Anna Murawska, 2021. "Comparison of Consumption and Renewable Sources of Energy in European Union Countries—Sectoral Indicators, Economic Conditions and Environmental Impacts," Energies, MDPI, vol. 14(12), pages 1-24, June.

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    More about this item

    Keywords

    Economic growth; Electricity prices; Cointegration; Causality; European Union;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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