On the Global Energy Consumption and Economic Growth Nexus: a Long Time Span Analysis

Abstract

There is plenty of research on the energy-growth nexus for individual countries and panels of countries, but none at a global level. For this reason, this paper aims to provide important information for energy policymakers. The global energy consumption and economic growth nexus was analyzed by using an annual time series from 1965 to 2013. An auto-regressive distributed lag (ARDL) approach was followed in the presence of permanent shocks (structural breaks). The ARDL bounds test, as well as both short- and long-run elasticities, was performed. Performing the Johansen co-integration and the Toda and Yamamoto causality testing procedure gives robustness to the results. The results suggest that there is bi-directional causality between energy consumption and growth, both in the short- and long-run. High and positive long-run elasticities were found. Accordingly, conservation policies on energy could reduce economic growth on a worldwide scale. In addition, policies could begin to have a cyclical effect, given that there is bidirectional causality between energy consumption and economic growth.