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Financial development and energy demand in the United States: New evidence from combined cointegration and asymmetric causality tests

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  • Farhani, Sahbi
  • Solarin, Sakiru Adebola

Abstract

This paper applies a newly developed LM unit root test based on residual augmented least squares (RALS) regression under structural break and Bayer–Hanck cointegration approach to explore the integrating properties and to check whether a long run relationship exists among energy demand, financial development, economic growth, foreign direct investment (hereafter FDI), trade and capital using the United States dataset spanning over a period of four decades of 1973q1–2014q4. The results reveal cointegration among the series. Also, we find that financial development, FDI and real GDP reduce energy demand, while energy demand is positively affected by trade and capital in the long run. Moreover, real GDP and capital have an inverse impact on energy demand, while financial development, FDI and trade stimulate energy demand in the short run. Using a recently introduced asymmetric causality test, the results show that real GDP, FDI, trade and capital Granger cause energy demand in the long run, while a feedback effect is found for FDI and trade. This study opens up new insights for policy makers to maintain financial development and sustain economic growth in the United States.

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  • Farhani, Sahbi & Solarin, Sakiru Adebola, 2017. "Financial development and energy demand in the United States: New evidence from combined cointegration and asymmetric causality tests," Energy, Elsevier, vol. 134(C), pages 1029-1037.
  • Handle: RePEc:eee:energy:v:134:y:2017:i:c:p:1029-1037
    DOI: 10.1016/j.energy.2017.06.121
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    Cited by:

    1. Bakirtas, Tahsin & Akpolat, Ahmet Gokce, 2018. "The relationship between energy consumption, urbanization, and economic growth in new emerging-market countries," Energy, Elsevier, vol. 147(C), pages 110-121.
    2. Masnun Mahi & Seuk Wai Phoong & Izlin Ismail & Che Ruhana Isa, 2019. "Energy–Finance–Growth Nexus in ASEAN-5 Countries: An ARDL Bounds Test Approach," Sustainability, MDPI, Open Access Journal, vol. 12(1), pages 1-16, December.
    3. Oshin Khan & Muhammad Zeeshan Younas, 2019. "Interaction between Energy Consumption and Economic Growth in Pakistan: A More Comprehensive Analysis Using ARDL Approach," Energy Economics Letters, Asian Economic and Social Society, vol. 6(1), pages 30-51, March.
    4. Yasemin Dumrul, 2018. "Estimating the Impact of the Financial Development on Energy Consumption: A Co-integration Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 8(5), pages 294-299.
    5. Tursoy, Turgut, 2018. "The dynamic relationship between Financial Development and the Energy Demand in North Cyprus: Evidence from ARDL Bounds and Combine Cointegration Tests," MPRA Paper 88324, University Library of Munich, Germany.
    6. Pan, Xiongfeng & Uddin, Md. Kamal & Han, Cuicui & Pan, Xianyou, 2019. "Dynamics of financial development, trade openness, technological innovation and energy intensity: Evidence from Bangladesh," Energy, Elsevier, vol. 171(C), pages 456-464.
    7. Pradhan, Rudra P. & Arvin, Mak B. & Nair, Mahendhiran & Bennett, Sara E. & Hall, John H., 2018. "The dynamics between energy consumption patterns, financial sector development and economic growth in Financial Action Task Force (FATF) countries," Energy, Elsevier, vol. 159(C), pages 42-53.
    8. Pan, Xiongfeng & Uddin, Md. Kamal & Saima, Umme & Guo, Shucen & Guo, Ranran, 2019. "Regime switching effect of financial development on energy intensity: Evidence from Markov-switching vector error correction model," Energy Policy, Elsevier, vol. 135(C).
    9. Kahouli, Bassem, 2017. "The short and long run causality relationship among economic growth, energy consumption and financial development: Evidence from South Mediterranean Countries (SMCs)," Energy Economics, Elsevier, vol. 68(C), pages 19-30.
    10. Shiwen Liu & Hongyuan Li, 2020. "Does Financial Development Increase Urban Electricity Consumption? Evidence from Spatial and Heterogeneity Analysis," Sustainability, MDPI, Open Access Journal, vol. 12(17), pages 1-17, August.
    11. Chen, Zhongfei & Huang, Wanjing & Zheng, Xian, 2019. "The decline in energy intensity: Does financial development matter?," Energy Policy, Elsevier, vol. 134(C).

    More about this item

    Keywords

    Energy demand; Financial development; The United States;

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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