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Might electricity consumption cause urbanization instead? Evidence from heterogeneous panel long-run causality tests

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  • Liddle, Brantley
  • Lung, Sidney

Abstract

The share of a population living in urban areas, or urbanization, is both an important demographic, socio-economic phenomenon and a popular explanatory variable in macro-level models of energy and electricity consumption and their resulting carbon emissions. Indeed, there is a substantial, growing subset of the global modeling literature that seeks to link urbanization with energy and electricity consumption, as well as with carbon emissions. This paper aims to inform both modelers and model consumers about the appropriateness of establishing such a link by examining the nature of long-run causality between electricity consumption and urbanization using heterogeneous panel methods and data from 105 countries spanning 1971-2009. In addition, the analysis of the time series properties of urbanization has implications both for modelers and for understanding the urbanization phenomenon. We consider total, industrial, and residential aggregations of electricity consumption per capita, three income-based panels, and three geography-based panels for non-OECD countries. The panel unit root, cointegration, and causality tests used account for cross-sectional dependence, nonstationarity, and heterogeneity—all of which are present in the data set. We cannot reject pervasively Granger causality in the urbanization to electricity consumption direction. However, the causality finding that is both the strongest and most similar across the various panels is that of long-run Granger causality from electricity consumption to urbanization. In other words, the employment and quality of life opportunities that access to electricity afford likely encourage migration to cities, and thus, cause urbanization. Also, nearly all countries’ urbanization series contained structural breaks, and the most recent post-break annual change rates suggested that nearly all countries’ rates of urbanization change were slowing. Lastly, future modeling work on energy consumption or carbon emissions should consider subnational scales of analysis, and focus on measures of urban density or urban form rather than national urbanization levels.

Suggested Citation

  • Liddle, Brantley & Lung, Sidney, 2013. "Might electricity consumption cause urbanization instead? Evidence from heterogeneous panel long-run causality tests," MPRA Paper 52333, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:52333
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    Cited by:

    1. Brantley Liddle & George Messinis, 2015. "Which comes first - urbanization or economic growth? Evidence from heterogeneous panel causality tests," Applied Economics Letters, Taylor & Francis Journals, vol. 22(5), pages 349-355, March.
    2. SBIA, Rashid & Shahbaz, Muhammad & Ozturk, Ilhan, 2016. "Economic Growth, Financial Development, Urbanization and Electricity Consumption Nexus in UAE," MPRA Paper 74790, University Library of Munich, Germany, revised 24 Oct 2016.
    3. Shahbaz, Muhammad & Chaudhary, A.R. & Ozturk, Ilhan, 2017. "Does urbanization cause increasing energy demand in Pakistan? Empirical evidence from STIRPAT model," Energy, Elsevier, vol. 122(C), pages 83-93.
    4. Wang, Qiang & Wu, Shi-dai & Zeng, Yue-e & Wu, Bo-wei, 2016. "Exploring the relationship between urbanization, energy consumption, and CO2 emissions in different provinces of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 1563-1579.

    More about this item

    Keywords

    urbanization and electricity; long-run panel Granger causality; panel unit roots; cross-sectional dependence; panel heterogeneity;

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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