Open AccessEnergy Sources and Gross Domestic Product: International Evidence
Author(s) -
Waseem Ahmad,
Tanvir Ahmed
Publication year - 2014
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v53i4iipp.477-490
Subject(s) - economics , energy consumption , consumption (sociology) , gross domestic product , gross fixed capital formation , energy intensity , energy conservation , energy policy , macroeconomics , energy (signal processing) , monetary economics , renewable energy , ecology , social science , statistics , mathematics , sociology , biology , electrical engineering , engineering
The relationship between energy consumption and economicgrowth received a significant amount of attention in energy economicsliterature [Al-Iraiani (2006)]. Rufael (2006) stated that differentenergy sources are a necessary requirement for economic and socialdevelopment and no country in the world has progressed from subsistenceeconomy without the use of energy. In this regard, four views haveemerged over time about the relationship between energy consumption andoutput growth. One point of view is that energy is the prime source ofvalue and other factors like labor and capital cannot do without energy.Many studies argue that the impact of energy use on growth depends onthe structure of the economy and the stage of economic growth of thecountry concerned [Ghali and Sakka (2004)]. The bulk of the literaturereports a uni-directional causality from energy consumption to economicgrowth. When the causality runs from energy consumption to economicgrowth, it is also called ‘growth hypothesis’. Table 1 provides a listof the studies, which show such results. It implies that an increase inenergy consumption has a significant impact on economic growth and if itis positive, then energy conservation policies have a detrimental impacton economic growth. Alternatively, if an increase in energy consumptionhas significant negative impact on GDP, it implies that growing economyneeds a less amount of energy consumption, may be due to shift towardsless energy intensive sectors [Payne (2010)]. Second point of view isthat economic growth has a positive influence on energy consumption.There may be uni–directional causality from economic growth to energyconsumption. Table 1 displays a list of studies showing such results.When the causality runs from economic growth to energy consumption, itis often referred to as ‘conservation hypothesis’. It implies thatenergy conservation policies formulated to reduce energy consumption maynot adversely affect economic growth. Third point of view is that thecost of energy use is very small compared to GDP and consequently itsimpact on economic growth is nonsignificant. There may be no causalitybetween energy consumption and GDP; it is often referred to as‘neutrality hypothesis”.