Ruhr Economic Papers

Ruhr Economic Papers #303

Energy Consumption and Economic Growth Revisited: Structural Breaks and Cross-section Dependence

by Frauke Dobnik

University of Duisburg-Essen, RGS Econ, 12/2011, 43 S./p., 8 Euro, ISBN 978-3-86788-348-1



This paper examines the causal relationship between real GDP and energy consumption for 23 OECD countries from 1971 to 2009. Using recently developed panel econometric techniques the present paper takes into account structural breaks and cross-section dependence when analysing the energy consumption-growth nexus. The empirical results of this study indicate that there exists a long-run equilibrium relationship between real GDP and energy consumption, and the impact of real GDP on energy consumption is larger than vice versa. Furthermore, the empirical evidence of a dynamic panel error-correction model reveals a bidirectional causal relationship between economic growth and energy consumption in both the short and long run.

JEL-Classification: C33, C23, Q43

Keywords: Energy consumption; panel unit roots and cointegration; structural breaks; cross-section dependence; panel error-correction model; Granger causality