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Explaining the (non-) causality between energy and economic growth in the U.S. - A multivariate sectoral analysis

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  • Christian Gross

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Abstract

The rapidly growing literature on the relationship between energy consumption and economic growth has not univocally identified the ‘real’ causal relationship yet. We argue that bivariate models, which analyze the causality at the level of the total economy, are not appropriate – especially in cases where both variables do not cover the same scope of economic activity. After discussing appropriate pairs of variables, we investigate Granger causality between energy consumption and GDP in the U.S. for the period from 1970 to 2007 for three sectors - industry, commercial sector, transport as well as for the total economy. The choice of additional variables is based on major findings from the Environmental Kuznets curve literature and its critical reflections. Using the recently developed ARDL bounds testing approach by Pesaran and Shin (1999) and Pesaran et al. (2001), we find evidence for long-run Granger causality for the commercial sector, in case energy is the dependent variable, as well as bi-directional long-run Granger causality for the transport sector. We conclude that controlling for trade as well as increasing energy productivity significantly improves the fit of several extensions of the bivariate model.

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Paper provided by Philipps University Marburg, Department of Geography in its series Papers on Economics and Evolution with number 2011-04.

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Date of creation: May 2011
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Handle: RePEc:esi:evopap:2011-04

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Keywords: energy; growth; multivariate ARDL; cointegration; granger causality Length 30 pages;

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Citations

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Cited by:
  1. Bruns, Stephan B. & Gross, Christian, 2013. "What if Energy Time Series are not Independent? Implications for Energy-GDP Causality Analysis," FCN Working Papers 10/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  2. Shahbaz, Muhammad & Abosedra, Salah & Sbia, Rashid, 2013. "Energy Consumption, Financial Development and Growth: Evidence from Cointegration with unknown Structural breaks in Lebanon," MPRA Paper 46580, University Library of Munich, Germany.
  3. Stephan B. Bruns & Christian Gross, 2012. "Can Declining Energy Intensity Mitigate Climate Change? Decomposition and Meta-Regression Results," Papers on Economics and Evolution 2012-11, Max Planck Institute of Economics, Evolutionary Economics Group.
  4. Stephan B. Bruns & Christian Gross & David I. Stern, 2013. "Is There Really Granger Causality Between Energy Use and Output?," Crawford School Research Papers 1307, Crawford School of Public Policy, The Australian National University.
  5. Tang, Chor Foon & Shahbaz, Muhammad, 2013. "Sectoral analysis of the causal relationship between electricity consumption and real output in Pakistan," Energy Policy, Elsevier, vol. 60(C), pages 885-891.
  6. Mehdi Abid & Maamar Sebri, 2012. "Energy Consumption-Economic Growth Nexus: Does the Level of Aggregation Matter?," International Journal of Energy Economics and Policy, Econjournals, vol. 2(2), pages 55-62.
  7. Christian Gross & Ulrich Witt, 2012. "The Energy Paradox of Sectoral Change and the Future Prospects of the Service Economy," Papers on Economics and Evolution 2012-09, Max Planck Institute of Economics, Evolutionary Economics Group.

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