An investigation of cointegration and causality between energy consumption and economic growth

Abstract

This paper reexamines the causality between energy consumption and economic growth with both bivariate and multivariate models by applying the recently developed methods of cointegration and Hsiao`s version of the Granger causality to transformed U.S. data for the period 1947-1990. The Phillips-Perron (PP) tests reveal that the original series are not stationary and, therefore, a first differencing is performed to secure stationarity. The study finds no causal linkages between energy consumption and economic growth. Energy and gross national product (GNP) each live a life of its own. The results of this article are consistent with some of the past studies that find no relationship between energy and GNP but are contrary to some other studies that find GNP unidirectionally causes energy consumption. Both the bivariate and trivariate models produce the similar results. We also find that there is no causal relationship between energy consumption and industrial production. The United States is basically a service-oriented economy and changes in energy consumption can cause little or no changes in GNP. In other words, an implementation of energy conservation policy may not impair economic growth. 27 refs., 5 tabs.

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