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Dynamic modelling of energy consumption, capital stock, and real income in G-7 countries

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  • Lee, Chien-Chiang
  • Chien, Mei-Se

Abstract

This paper applies an aggregate production function to examine the dynamic linkages among energy consumption, capital stock, and real income (real GDP per capita) in G-7 counties. We employ the Toda and Yamamoto (1995) Granger causality test, the generalized impulse response approach, and variance decompositions in a multivariate setting to uncover the extent and the magnitude of the relationship among variables. Our empirical results find evidence of a unidirectional relationship running from energy consumption to real income in Canada, Italy, and the UK, indicating that energy conservation may hinder economic growth in the three countries. Furthermore, the causality relationship appears to be unidirectional, but reversed, for France and Japan, implying that energy conservation in both countries may still be viable, but without being detrimental to economic growth. As to Germany and the U.S., there is no causality between the variables, which demonstrates the 'neutrality hypothesis', and in such a case economic growth will not affect energy use. We further see that the impact of capital stock is relatively higher compared with that of energy consumption. Transitory initial impacts of innovations in energy consumption on capital stock and real income are observed.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 3 (May)
Pages: 564-581

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:3:p:564-581

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Energy consumption Capital stock Real income Variance decomposition analysis Generalized impulse response Granger causality;

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Cited by:
  1. Shahbaz, Muhammad & Khan, Saleheen & Tahir, Mohammad Iqbal, 2013. "The dynamic links between energy consumption, economic growth, financial development and trade in China: Fresh evidence from multivariate framework analysis," Energy Economics, Elsevier, vol. 40(C), pages 8-21.
  2. Hazuki ISHIDA, 2013. "Causal Relationship between Fossil Fuel Consumption and Economic Growth in Japan: A Multivariate Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 3(2), pages 127-136.
  3. Mohamed Arouri & Gazi Salah Uddin & Phouphet Kyophilavong & Frédéric Teulon & Aviral Kumar Tiwari, 2014. "Energy Utilization and Economic Growth in France: Evidence from Asymmetric Causality Test," Working Papers 2014-102, Department of Research, Ipag Business School.
  4. Belke, Ansgar & Dobnik, Frauke & Dreger, Christian, 2011. "Energy consumption and economic growth: New insights into the cointegration relationship," Energy Economics, Elsevier, vol. 33(5), pages 782-789, September.
  5. Omay, Tolga & Hasanov, Mubariz & Ucar, Nuri, 2012. "Energy consumption and economic growth: evidence from nonlinear panel cointegration and causality tests," MPRA Paper 37653, University Library of Munich, Germany.
  6. Zsuzsanna Csereklyei & Stefan Humer, 2012. "Modelling Primary Energy Consumption under Model Uncertainty," Department of Economics Working Papers wuwp147, Vienna University of Economics, Department of Economics.
  7. Menegaki, Angeliki N., 2014. "On energy consumption and GDP studies; A meta-analysis of the last two decades," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 31-36.
  8. Md. Shahiduzzaman & Khorshed Alam, 2014. "A reassessment of energy and GDP relationship: the case of Australia," Environment, Development and Sustainability, Springer, vol. 16(2), pages 323-344, April.
  9. Islam, Faridul & Shahbaz, Muhammad & Rahman, Mohammad Mafizur, 2013. "Trade Openness, Financial Development Energy Use and Economic Growth in Australia:Evidence on Long Run Relation with Structural Breaks," MPRA Paper 52546, University Library of Munich, Germany, revised 28 Dec 2013.
  10. Gander, James P., 2012. "A simple dynamic energy capacity model," Energy Economics, Elsevier, vol. 34(1), pages 78-81.
  11. Bukhari M.S. Sillah & Hamad M.H. Al-Sheikh, 2012. "Income, Price, and Government Expenditure Elasticities of Oil in the Gulf Cooperation Council Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 2(4), pages 333-341.
  12. Salamaliki, Paraskevi K. & Venetis, Ioannis A., 2013. "Energy consumption and real GDP in G-7: Multi-horizon causality testing in the presence of capital stock," Energy Economics, Elsevier, vol. 39(C), pages 108-121.
  13. KARGI, Bilal, 2014. "Electricity Consumption and Economic Growth: A Long-Term Co-integrated Analysis for Turkey," MPRA Paper 55699, University Library of Munich, Germany.
  14. Shahiduzzaman, Md & Alam, Khorshed, 2012. "Cointegration and causal relationships between energy consumption and output: Assessing the evidence from Australia," Energy Economics, Elsevier, vol. 34(6), pages 2182-2188.
  15. Margarida R. Alves & Victor Moutinho, 2013. "Decomposition analysis for energy-related CO2 emissions intensity over 1996-2009 in Portuguese Industrial Sectors," CEFAGE-UE Working Papers 2013_10, University of Evora, CEFAGE-UE (Portugal).
  16. Kum, Hakan & Ocal, Oguz & Aslan, Alper, 2012. "The relationship among natural gas energy consumption, capital and economic growth: Bootstrap-corrected causality tests from G-7 countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(5), pages 2361-2365.
  17. Suganthi, L. & Samuel, Anand A., 2012. "Energy models for demand forecasting—A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(2), pages 1223-1240.

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