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Energy Consumption and Economic Growth in China: A Reconciliation

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  • A. Talha Yalta
  • Hatice Cakar

Abstract

In conventional causality testing based on asymptotic distribution theory, there is a high risk of wrongly rejecting the true null of no causality especially when the sample size is as small as typically seen in the literature. In this study, we offer a formal diagnosis of the existing contradictory results on the causal relationship between energy consumption and real GDP. We also employ a time series oriented advanced data generation process to perform simulation based inference for the People's Republic of China. Our study covers the 1971–2007 period and considers five different aggregated and disaggregated energy consumption measures as well as three different lag orders in both a bivariate as well as a multivariate frameworks. Our maximum entropy bootstrap based analysis, which avoids pretest biases and is also robust to Type I errors, supports the neutrality hypothesis in 53 out of the total of 60 model estimations. The strong results show that coarse aggregate data has a limited potential to observe the complex causal linkages between energy consumption and economic growth. Future policy oriented research on this nexus requires more focused analyses based on sectoral and provincial data.

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Paper provided by TOBB University of Economics and Technology, Department of Economics in its series Working Papers with number 1202.

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Date of creation: Apr 2012
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Handle: RePEc:tob:wpaper:1202
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Cited by:

  1. A. Talha Yalta, 2013. "Small Sample Bootstrap Inference of Level Relationships in the Presence of Autocorrelated Errors: A Large Scale Simulation Study and an Application in Energy Demand," Working Papers 1301, TOBB University of Economics and Technology, Department of Economics.
  2. A. Talha Yalta, 2013. "The Dynamics of Road Energy Demand and Illegal Fuel Activity in Turkey: A Rolling Window Analysis," Working Papers 1304, TOBB University of Economics and Technology, Department of Economics, revised Jul 2013.
  3. Minzhe Du & Bing Wang & Yanrui Wu, 2014. "Sources of China’s Economic Growth: An Empirical Analysis Based on the BML Index with Green Growth Accounting," Sustainability, MDPI, Open Access Journal, vol. 6(9), pages 5983-6004, September.
  4. Ismet Ugursal, V., 2014. "Energy consumption, associated questions and some answers," Applied Energy, Elsevier, vol. 130(C), pages 783-792.
  5. Naiming Xie & Alan Pearman, 2014. "Forecasting energy consumption in China following instigation of an energy-saving policy," Natural Hazards, International Society for the Prevention and Mitigation of Natural Hazards, vol. 74(2), pages 639-659, November.
  6. Muhammad, Shahbaz & Saleheen, Khan & Mohammad, Iqbal Tahir, 2012. "The Dynamic Link between Energy Consumption, Economic Growth, Financial Development and Trade in China: Fresh Evidence from Multivariate Framework Analysis," MPRA Paper 42974, University Library of Munich, Germany, revised 26 Nov 2012.
  7. Herrerias, M.J. & Joyeux, R. & Girardin, E., 2013. "Short- and long-run causality between energy consumption and economic growth: Evidence across regions in China," Applied Energy, Elsevier, vol. 112(C), pages 1483-1492.

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