Relationship between Energy Consumption and Economic Growth: Empirical Evidence for Malaysia

Abstract

This paper aims to examine the relationship between energy consumptions and economic growth and to address policy problems on energy consumption in Malaysia by using data from 1980 to 2010. Johansen co-integration is employed to analyze the data. Findings show that energy consumptions are related to economic growth. The Granger causality model is used to measure the causal effect of energy consumption and gross domestic product. The results indicate that oil and coal consumption does not Granger cause economic growth and vice versa. Causality runs from economic growth to electricity consumption. A unidirectional relationship exists between gas and economic growth, with causality running from electricity use to economic growth. Therefore, a policy to reduce gas utilization will harm economic growth in Malaysia.

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