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Econometric Prediction on the Effects of Financial Development and Trade Openness on the German Energy Consumption: A Startling Revelation

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  • Abdulkadir Abdulrashid Rafindadi

    (Department of Economics, Usmanu Danfodiyo University, Sokoto, Nigeria.)

Abstract

This study aims to predict the effects of financial development and Trade openness on the German energy consumption. To ensure this, the study used time series data from 1970- 2013. Following to this, the Zivot-Andrew structural break unit root test, the Bayer-Hank combined cointegration test, the ARDL bounds test and the VECM Granger causality test were applied. The findings of the study confirmed the existence of cointegration among the variables. As a result, the study discovered that economic growth adds to energy demand in Germany. Surprisingly, financial development, capital use and Trade openness were found to decline energy demand. It was discovered that a 1% increase in economic growth influence energy consumption by 2.1053%., while a 1% increase in financial development, capital use and Trade openness decrease energy consumption by 0.1863%, 0.9269%, 0.2091% respectively. The causality analysis reveals the existence of feedback effect between financial development and energy consumption and same inference was found to exist between trade openness and energy consumption. The results of the Granger causality analysis reveal that economic growth Granger-cause energy consumption, financial development, capital use and trade openness in Germany. In the light of this, the study advocates for a continued investment effort in renewable energy and the adoption of those policies and strategies that will promote the use of green technologies at the industrial level. While at the household level, investment should be encouraged in the appropriate energy infrastructure that could assist with the simultaneous satisfaction of efficient energy usage.

Suggested Citation

  • Abdulkadir Abdulrashid Rafindadi, 2015. "Econometric Prediction on the Effects of Financial Development and Trade Openness on the German Energy Consumption: A Startling Revelation," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 182-196.
  • Handle: RePEc:eco:journ2:2015-01-15
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    13. Rafindadi, Abdulkadir Abdulrashid & Ozturk, Ilhan, 2017. "Impacts of renewable energy consumption on the German economic growth: Evidence from combined cointegration test," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 1130-1141.
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    15. Abdulkadir Abdulrashid Rafindadi, 2015. "Could the Expanding Economic Growth and Trade Openness of the United Kingdom Pose a Threat to its Existing Energy Predicaments?," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 121-137.
    16. Rafindadi, Abdulkadir Abdulrashid & Ozturk, Ilhan, 2015. "Natural gas consumption and economic growth nexus: Is the 10th Malaysian plan attainable within the limits of its resource?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 1221-1232.
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    More about this item

    Keywords

    Economic Growth; Financial Development; Trade; Energy; Germany;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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