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How Dependent Is Growth From Primary Energy? An Empirical Answer on 33 Countries

How Dependent Is Growth From Primary Energy? An Empirical Answer on 33 Countries. www.theshiftproject.org. Outline. Introduction Empirical methodology The data Time series properties of the data Conclusion. I ntroduction. Why is this relationship important ?.

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How Dependent Is Growth From Primary Energy? An Empirical Answer on 33 Countries

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  1. How Dependent Is Growth From Primary Energy? An Empirical Answer on 33 Countries www.theshiftproject.org

  2. Outline • Introduction • Empirical methodology • The data • Time series properties of the data • Conclusion

  3. Introduction Why is this relationship important ? • Mainstream economic models do not include energy as a factor that could foster economic growth. • Ecological economists, often ascribe to energy the central role in economic growth. • Is energy an important driver of economic growth ? • If so, what is the magnitude of the dependency of growth from energy ?

  4. Introduction Why is this relationship important ? Oil prices and World GDP (1965 – 2011) Sources: BP statistical Review, 2012, Shilling et al. 1977, EIA, 2012, and World Bank (GDP), 2012.

  5. Introduction Why is this relationship important ? Primary Energy Consumption and GDP (1965 – 2011) Source : BP statistical review, 2012, Shilling et al. 1977, EIA, 2012, and World Bank (GDP), 2012.

  6. Introduction Why is this relationship important ? The GDP share of primary energy, U.S., 1970-2010. Source: EIA, http://www.eia.gov/totalenergy/data/annual/pdf/sec1_13.pdf

  7. Empirical methodology • Variables under scrutiny is: • Primary energy consumption (million tons of oil equivalents) • GDP (in 2000 U.S dollars) • Gross Fixed Capital Formation (in 2000 U.S dollars) • Population (millions) World Bank, World Development Indicators

  8. The data • The analysis is based on a panel data covering the period from 1970 to 2011 for 33countries.

  9. Estimation of the long run relation The main equation: lnGDPi,t= βi,0+βi,1 lnNRGi,t+βi,2 lnEFFi,t-1+βi,3 lnKi,t+εi,t All the variables are per capita

  10. Time series properties of the data Cross section dependence, Unit Root and Co-integration tests • Cross Section Dependence Test of Pesaran • Unit Root Tests: • First Generation: • Levin, Lin and Chu test • Breitung • Im, Pesaran and Shin • ADF-Fisher • Philips Perron– Fisher • Second Generation: • CIPS test • Co-integration Tests: • Pedroni’s residual co-integration tests • Westerlund test common unit root process Individual unit root process

  11. Emprical Results Co-integration tests results Table 5. Pedroni Residual Cointegration Test Table 6. Westerlund panel cointegration test results

  12. Emprical Results Estimation of the long run relation Can we quantify this long-run relationship ? The short-run speed of convergence towards the equilibrium relation ?An ECM approach: "ϕi" is the error correction term, "βi" is long-run coefficients, δ incorporates short-run information

  13. Emprical Results Estimation of the long run relation Table 7. Results of long-run estimations

  14. Emprical Results Granger Causality Table 8. Panel causality test results

  15. Conclusion • Primary energy is a key factor that drives GDP growth: its long-run output elasticity evolved around 0.6. • Capital accumulation has played a minor role compared to energy: long-run elasticity for capital around 0.2. • These estimations are also robust to the choice of various sub periods of time and subsamples of countries. • There are good reasons to believe that, the output elasticity of energy is decoupled from its GDP share. • Our inquiry does not suggest that energy use be the sole first-order factor driving growth. Efficiency plays a dual, almost comparable role. • Energy and GDP cointegrateand energy use univocally Granger causes GDP in the long-run

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