Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis
AbstractDespite a bourgeoning literature on the existence of a long-run relationship between energy consumption and economic growth, the findings have failed to establish clearly the direction of causation. A growing economy needs more energy, which is exacerbated by growing population. Evidence suggests that financial development can reduce overall energy consumption by achieving energy efficiency. Economic growth and energy consumption in Malaysia have been rising in tandem over the past several years. The three public policy objectives of Malaysia are: economic progress, population growth and financial development. It is of interest to the policymakers to understand the dynamic interrelation among the stated objectives. The paper implements Auto Regressive Distributed Lag (ARDL) approach to cointegration to examine the existence of a long-run relationship among the series: energy consumption, population, aggregate production, and financial development for Malaysia; and tests for Granger causality within the Vector Error Correction Model (VECM). The results suggest that energy consumption is influenced by economic growth and financial development, both in the short and the long-run, but the population-energy relation holds only in the long run. The findings have important policy implications for balancing economic growth vis-à-vis energy consumption for Malaysia, as well as other emerging nations.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28403.
Date of creation: 19 Jan 2011
Date of revision:
Financial development; Energy consumption; ARDL; Economic growth;
Other versions of this item:
- Islam, Faridul & Shahbaz, Muhammad & Ahmed, Ashraf U. & Alam, Md. Mahmudul, 2013. "Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis," Economic Modelling, Elsevier, vol. 30(C), pages 435-441.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
- O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-ENE-2011-02-05 (Energy Economics)
- NEP-FDG-2011-02-05 (Financial Development & Growth)
- NEP-SEA-2011-02-05 (South East Asia)
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