Advanced Search
MyIDEAS: Login to save this paper or follow this series

Causality Between Energy and Output in the Long-Run

Contents:

Author Info

  • Stern, David

    ()
    (Crawford School of Public Policy, Australian National University, Canberra)

  • Enflo, Kerstin

    ()
    (Department of Economic History, Lund University)

Abstract

Though there is a very large literature examining whether energy use Granger causes economic output or vice versa this literature is fairly inconclusive. Almost all existing studies use relatively short time series or panels with a relatively small time dimension. Additionally, many recent papers continue to use what seem to be misspecified models. We apply Granger causality and cointegration techniques to a Swedish time series data set on energy and economic growth spanning 150 years to test whether increases in energy use and energy quality have driven economic growth. We show that these techniques are very sensitive to variable definition, choice of additional variables in the model, and sample periods. All of the following appear to make a finding that energy causes growth more likely: using multivariate models, defining variables to better reflect their theoretical definition, using larger samples, and including appropriate structural breaks. However, it is also possible that the relationship between energy and growth has changed over time and that results from recent smaller samples reflect this. Energy prices have a significant causal impact on both energy use and output.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ekh.lu.se/media/ekh/forskning/lund_papers_in_economic_history/126.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Kerstin Enflo) or (Benny Carlsson)
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economic History, Lund University in its series Lund Papers in Economic History with number 126.

as in new window
Length: 43 pages
Date of creation: 20 Jan 2013
Date of revision:
Handle: RePEc:hhs:luekhi:0126

Contact details of provider:
Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
Phone: +46 46-222 00 00
Fax: +46 46-13 15 85
Web page: http://www.ekh.lu.se/
More information through EDIRC

Related research

Keywords: Energy; macroeconomics; Granger causality; cointegration; causality; time series;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. James J. Heckman, 2008. "Econometric Causality," NBER Working Papers 13934, National Bureau of Economic Research, Inc.
  2. Vaona, Andrea, 2012. "Granger non-causality tests between (non)renewable energy consumption and output in Italy since 1861: The (ir)relevance of structural breaks," Energy Policy, Elsevier, vol. 45(C), pages 226-236.
  3. Schwert, G William, 1989. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(2), pages 147-59, April.
  4. Gales, Ben & Kander, Astrid & Malanima, Paolo & Rubio, Mar, 2007. "North versus South: Energy transition and energy intensity in Europe over 200 years," European Review of Economic History, Cambridge University Press, vol. 11(02), pages 219-253, August.
  5. Lee, Chien-Chiang & Chang, Chun-Ping, 2008. "Energy consumption and economic growth in Asian economies: A more comprehensive analysis using panel data," Resource and Energy Economics, Elsevier, vol. 30(1), pages 50-65, January.
  6. Glasure, Yong U., 2002. "Energy and national income in Korea: further evidence on the role of omitted variables," Energy Economics, Elsevier, vol. 24(4), pages 355-365, July.
  7. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
  8. Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University.
  9. Stanley, T. D. & Jarrell, Stephen B. & Doucouliagos, Hristos, 2010. "Could It Be Better to Discard 90% of the Data? A Statistical Paradox," The American Statistician, American Statistical Association, vol. 64(1), pages 70-77.
  10. Chiou-Wei, Song Zan & Chen, Ching-Fu & Zhu, Zhen, 2009. "Economic growth and energy consumption revisited -- Evidence from linear and nonlinear Granger causality," Energy Economics, Elsevier, vol. 31(2), pages 235-239, March.
  11. Hondroyiannis, George & Lolos, Sarantis & Papapetrou, Evangelia, 2002. "Energy consumption and economic growth: assessing the evidence from Greece," Energy Economics, Elsevier, vol. 24(4), pages 319-336, July.
  12. Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-84, June.
  13. Warr, B.S. & Ayres, R.U., 2010. "Evidence of causality between the quantity and quality of energy consumption and economic growth," Energy, Elsevier, vol. 35(4), pages 1688-1693.
  14. David E. Giles & Ryan T. Godwin, 2011. "Testing for Multivariate Cointegration in the Presence of Structural Breaks: p-Values and Critical Values," Econometrics Working Papers 1110, Department of Economics, University of Victoria.
  15. Chontanawat, Jaruwan & Hunt, Lester C. & Pierse, Richard, 2008. "Does energy consumption cause economic growth?: Evidence from a systematic study of over 100 countries," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 209-220.
  16. Bent Nielsen, 2000. "Cointegration Analysis in the Presence of Structural Breaks in the Deterministic Trend," Econometric Society World Congress 2000 Contributed Papers 1494, Econometric Society.
  17. Joachim Wilde, 2012. "Effects of simultaneity on testing Granger-causality – a cautionary note about statistical problems and economic misinterpretations," Working Papers 93, Institute of Empirical Economic Research.
  18. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  19. Ohanian, Lee E., 1988. "The spurious effects of unit roots on vector autoregressions : A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 39(3), pages 251-266, November.
  20. Stern, David I., 2000. "A multivariate cointegration analysis of the role of energy in the US macroeconomy," Energy Economics, Elsevier, vol. 22(2), pages 267-283, April.
  21. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, October.
  22. Costantini, Valeria & Martini, Chiara, 2010. "The causality between energy consumption and economic growth: A multi-sectoral analysis using non-stationary cointegrated panel data," Energy Economics, Elsevier, vol. 32(3), pages 591-603, May.
  23. Bauer, Dietmar & Maynard, Alex, 2012. "Persistence-robust surplus-lag Granger causality testing," Journal of Econometrics, Elsevier, vol. 169(2), pages 293-300.
  24. Stern, David I., 2009. "Energy quality," MPRA Paper 16857, University Library of Munich, Germany.
  25. Lutkepohl, Helmut, 1982. "Non-causality due to omitted variables," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 367-378, August.
  26. Toda, Hiro Y. & Phillips, Peter C. B., 1993. "The spurious effect of unit roots on vector autoregressions : An analytical study," Journal of Econometrics, Elsevier, vol. 59(3), pages 229-255, October.
  27. Stern, David I., 1993. "Energy and economic growth in the USA : A multivariate approach," Energy Economics, Elsevier, vol. 15(2), pages 137-150, April.
  28. David I. Stern & Tony Auld & Michael S. Common & Kali K. Sanyal, 1998. "Is there an environmental Kuznets curve for sulfur?," Working Papers in Ecological Economics 9804, Australian National University, Centre for Resource and Environmental Studies, Ecological Economics Program.
  29. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  30. David I. Stern, 2011. "From Correlation to Granger Causality," Crawford School Research Papers 1113, Crawford School of Public Policy, The Australian National University.
  31. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  32. Duo Qin, 2011. "Rise Of Var Modelling Approach," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 156-174, 02.
  33. David Greasley & Jakob B. Madsen & Mark E. Wohar, 2013. "Long-run growth empirics and new challenges for unified theory," Applied Economics, Taylor & Francis Journals, vol. 45(28), pages 3973-3987, October.
  34. James D. Hamilton, 2008. "Understanding Crude Oil Prices," NBER Working Papers 14492, National Bureau of Economic Research, Inc.
  35. Roselyne Joyeux & Ronald D. Ripple, 2011. "Energy Consumption and Real Income: A Panel Cointegration Multi-country Study," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 107-142.
  36. Masih, Abul M. M. & Masih, Rumi, 1997. "On the temporal causal relationship between energy consumption, real income, and prices: Some new evidence from Asian-energy dependent NICs Based on a multivariate cointegration/vector error-correctio," Journal of Policy Modeling, Elsevier, vol. 19(4), pages 417-440, August.
  37. Olivier J. Blanchard & Jordi Galí, 2007. "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?," NBER Chapters, in: International Dimensions of Monetary Policy, pages 373-421 National Bureau of Economic Research, Inc.
  38. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  39. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  40. David I. Stern and Astrid Kander, 2012. "The Role of Energy in the Industrial Revolution and Modern Economic Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
  41. Hiemstra, Craig & Jones, Jonathan D, 1994. " Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-64, December.
  42. Lee, Chien-Chiang & Chang, Chun-Ping & Chen, Pei-Fen, 2008. "Energy-income causality in OECD countries revisited: The key role of capital stock," Energy Economics, Elsevier, vol. 30(5), pages 2359-2373, September.
  43. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 766-779, September.
  44. Park, Joon Y. & Sung, Jaewhan, 1994. "Testing for Unit Roots in Models with Structural Change," Econometric Theory, Cambridge University Press, vol. 10(05), pages 917-936, December.
  45. Lütkepohl, Helmut & Saikkonen, Pentti & Trenkler, Carsten, 2001. "Testing for the cointegrating rank of a VAR process with level shift at unknown time," SFB 373 Discussion Papers 2001,63, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  46. Yu, Eden S. H. & Jin, Jang C., 1992. "Cointegration tests of energy consumption, income, and employment," Resources and Energy, Elsevier, vol. 14(3), pages 259-266, September.
  47. Ozturk, Ilhan, 2010. "A literature survey on energy-growth nexus," Energy Policy, Elsevier, vol. 38(1), pages 340-349, January.
  48. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
  49. Oh, Wankeun & Lee, Kihoon, 2004. "Causal relationship between energy consumption and GDP revisited: the case of Korea 1970-1999," Energy Economics, Elsevier, vol. 26(1), pages 51-59, January.
  50. Ghali, Khalifa H. & El-Sakka, M. I. T., 2004. "Energy use and output growth in Canada: a multivariate cointegration analysis," Energy Economics, Elsevier, vol. 26(2), pages 225-238, March.
  51. Choi, In & Saikkonen, Pentti, 2010. "Tests For Nonlinear Cointegration," Econometric Theory, Cambridge University Press, vol. 26(03), pages 682-709, June.
  52. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. My Year in Review 2013
    by David Stern in Stochastic Trend on 2013-12-24 04:20:00
  2. Stern and Enflo, Energy Economics
    by David Stern in Stochastic Trend on 2013-05-05 08:17:00
  3. Casuality between Energy and Output in the Long-Run
    by David Stern in Stochastic Trend on 2013-01-21 00:51:00
  4. Elsevier Article Usage Dashboards and Tips for Early Career Researchers
    by noreply@blogger.com (David Stern) in Stochastic Trend on 2014-05-29 03:06:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

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. Liam Wagner & Ian Ross & John Foster & Ben Hankamer, 2013. "Tracking global fuel supply, CO2 emissions and sustainable development," Energy Economics and Management Group Working Papers 7-2013, School of Economics, University of Queensland, Australia.
  3. Omri, Anis, 2013. "CO2 emissions, energy consumption and economic growth nexus in MENA countries: Evidence from simultaneous equations models," Energy Economics, Elsevier, vol. 40(C), pages 657-664.
  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. Bahman Kashi, 2014. "Risk Management and the Stated Capital Costs by Independent Power Producers," Development Discussion Papers 2014-03, JDI Executive Programs.
  6. Paresh Narayan & Russell Smyth, 2014. "Applied Econometrics and a Decade of Energy Economics Research," Development Research Unit Working Paper Series 21-14, Monash University, Department of Economics.
  7. Astrid Kander & David I. Stern, 2013. "Economic Growth and the Transition from Traditional to Modern Energy in Sweden," CAMA Working Papers 2013-65, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:luekhi:0126. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kerstin Enflo) or (Benny Carlsson).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.