energy consumption and trade openess relation with economical growth
TRANSCRIPT
EN E RG Y C O N S UM P T I O N A N D T RA D E OP E N ES S RE L A T I O N WI T H EC O NO M I CA L
G R OW T H
AMMAD KHALIL
SUPERIOR UNIVERSITY, LAHORE, PAKISTAN
EMAIL: [email protected]
Abstract: This paper explores the relationship between trade openness and energyConsumption with economical growth. The relationship between trade openness and energy consumption is inverted U-shaped in high income countries but U-shaped in middle and low income countries as pakistan . This paper also shows the real importance of trading and the real effects of trade on a growing economy. This paper also reveals the flaws of energy sector and how to overcome on those flaws .Facts and figures are shown through different tables and statistical explanations. Paper also explains the homogenous and non-homogenous causality analysis reveals the bidirectional causality between trade openness and energy consumption. The study covers the period of 1980-2013. We have applied panel cointegration and causality approaches for long run and causal relationship between the variables. This study also seeks to determine the direction of causality between energy consumption (EC) and economic growth. Trade liberalization influenced high rates of growth for the developing countries. Openness and liberalization and integration took place in the economies of almost all the developing countries during the late 80s and early 90s, in the previous century, on the inspiration of international donor agencies to implement the structural adjustment programs.
TABLE OF CONTENTS
1. ABSTRACT
2. INTRODUCTION
2.1 HISTORY / BACKGROUND
2.2 PREVIOUS STUDIES
2.3 GAP IN PREVIOUS STUDIES
2.4 PURPOSE OF STUDY
2.5 SIGNIFICANCE OF STUDY
2.6 BENEFITS FOR VIEWERS
3. PURPOSE STATEMENT
3.1 GENERAL STORY
3.2 DEEPLY DESCRIPTION
4. OBJECTIVE OF THE STUDY
4.1 MAIN OBJECTIVE
4.2 SUB OBJECTIVE
5. RESEARCH QUESTIONS
5.1 MAIN QUESTIONS
5.2 SUB QUESTIONS
6. RESEARCH HYPOTHESIS
6.1 NULL
6.2 ALTERNATIVE
7. SIGNIFICANCE OF STUDY
7.1 IMPORTANCE
7.2 NATIONAL LEVEL
7.3 INTERNATIONAL LEVEL
8. LITERATURE REVIEW
8.1 BACK GROUND
8.2 DEFINITION
8.3 INDIVIDUAL
8.4 RELATION OF VARIABLES
(1). TRADE
(2). CONSUMPTION
(3). TRADE AND CONSUMPTION WITH ECONOMICAL GROWTH
9. THEORETICAL FRAME WORK
9.1 DEPENDENT VARIABLE
9.2 INDEPENDENT VARIABLE
10. METHODOLOGY
10.1 SAMPLING TECHNIQUES
10.2 SAMPLE POPULATION
10.3 DATA COLLECTION TECHNIQUES
10.4 DATA ANALYSIS
10.5 RELIABILITY OF DATA
11. LIMITATION OF STUDY
11.1 WEAKNESS OF MY STUDY
12. ETHICAL CONSIDERATION
13. END LIST REFERENCES
APPENDIX
2.Introduction
2.1 History/background
Fast Economics begins after the great depression of 1930. After that people come to know the importance of economics. 7 million people starved to death in the Great Depression. After all by finding the reason they come to conclusion and cover up . so the current situation is better than the yore but need of research is still .our topic is about that what is the relationships, effects, of the trade sector and energy consumption on any economy .There are many effective ways to grow up wards in the bad economical situations for any country and in that kind of situations an economy uses the external links to get stability and take control on energy consumption but when we talk about stability that some things bring stability in an economy. There are many things but trade openness is one of them that the help of trade import / export a country earn much profit to look forward and fulfill the needs of country and got stability whom we called the situation of equilibrium on macro level. In the yore we can easily see that how successful economies took decisions.Trade liberalization has affected the flow of trade (goods and services) between developed and developing countries. The Heckscher-Ohlin trade theory reveals that under free trade, developing countries would specialize in the production of those goods that are produced by relatively abundant factors of production such as labor and natural resources
2.2 Previous studies on this topic
Many of the researchers work on this topic .They work on this topic and get different results .there are large numbers of researchers, students, scholars who worked on this. As,
Muhammad Shahbaz COMSATS Institute of Information Technology, Lahore, Pakistan Email: [email protected] Samia Nasreen Government College University Faisalabad, Faisalabad, Pakistan Email: [email protected] Chong Hui Ling University of Malaya Kuala Lumpur Malaysia Contact No. +60 123495113, Email: [email protected] Rashid Sbia*
*Department of Applied Economics Free University of Brussels Avenue F. Roosevelt, 50 C.P. 140 B- 1050 Brussels, Belgium [email protected]
2.3 Gap in previous studies
There are some gaps in previous studies.1- The data they choose is not so effective.2- A lot of time has passed on this topic but no effective results.3- Some of them do copy paste and crammed.4- Very few numbers of creativity on this topic. 5- There study is not so helpful for others.
2.4 purpose of study
Any kind of studies have a lot of purposes but my purpose of this study to overcome the current situation and the worst situation of my country into best. The main purpose of study is to give suggestions to our unstable economy’s economist that they do favor and focused on trade openness because it will be helpful for our country’s economy to grow and how to reduce the consumption by different alternative ways .UAE stands there economy by exporting and importing whether they have Oil but oil is not depend on the stability of their country they do many of business they import and export they give attention to tourism by achieving success in trade openness .
2.5 Significance of study
Trade is the most compulsory component of any economy and how to reduce and bring innovation in consumption in order to make effectiveness in reduction in consumption and grow new sources for any country. this study is important for a undeveloped country that after reading it they will be able to take decisions and having new ideas and well known about their new aims in the betterment of their country .They also get to know about the problems of their countries this article will be helpful in exploring and concluding the purpose that why they are going down.
2.6 Benefits for viewers
After reading my studies description people come to know the importance and worth of trade openness and they also know that how they do betterment in their consumption .A lot of reason are described in my article. This research article will be helpful for new researchers to get the work of researcher more easier than now because after reading my article they will be completely know the flaws of any economy .
3. Purpose statement
3.1 General story
Trade openness affects energy demand via scale effect, technique effect and composite effect. Other things being same, trade openness increases economic activities, thus stimulate domestic production and hence economic growth. A surge in domestic production reshapes energy demand because of expansion in domestic production commonly refers as scale effect. Such scale effect is caused by trade openness. Economic condition of the country and extent of relationship between economic growth and trade openness determine the impact of trade openness on energy consumption. Openness to trade has been considered as an important determinant of economic growth and aWell debated issue in the recent growth literature. Initially, the developing nations of the worldFollowed restrictive trade policies but with passage of time and emergence of globalization, allThe nations realized the need to liberalize to their economies in terms of trade openness.
3.2 Deeply description
Trade of a country is a key determinant for the improvement of a country’s industrialization. Moreover, development experienced by a country brings some changes in trade structure on the basis of endowments and comparative advantage (Hultman, 1967). Energy plays a crucial role in the economic development of a country. It enhances the productivity of factors of production and increases living standards. It is extensively recognized that economic development and energy consumption are interdependent.1 The energy crisis of the 1970s and persistently high energy prices, particularly oil prices, have had a significant impact on the economic activity of developing economies.
4. Objective of the study
4.1 Main objective
Main objective of the study is to find out the ways that give much response in making the better economical situation of country. How the sources effect on economy and locating new horizons of sources for consumption by this article readers will be able to affective thinking about economical situation and how to improve it and how to get out of any worst situations.
4.2 sub objective
Sub objective of this study is to highlights the importance of TRADE by giving examples that trade openness is the most effective act for up growing economy by using it economies got stability and perfections in the world markets and also focuses on the energy consumption new ways to reduce it and bring innovation in energy sector.
5. Research questions
5.1 Main questions1- How an economy got equilibrium situation by Trade? 2-What is the main relationship between economy and energy consumption? 3-How the stability situation will come in economy by making perfections in trade and energy sector?
5.2 sub questions1- Trade is a component but not necessary for stability of economy? 2-Energy consumption is getting high day by day, how we overcome?3-why these two trade/energy consumption have importance for any economy?
6. Research hypothesis
6.1 NUL
There is some nullify hypothesis in this topic is that these two variable is not enough to fulfill the needs of economy and not so helpful but we can’t ignore it. Because these two have their own importance but not so, for a growing economy needs are a lot but a few cannot achieve it.
6.2 Alternative
There is many good things and effective thing that bring reforms and goodness in economy, trade openness is powerful tool for success in economy. In this research energy sector improvement by using the best methods we could overcome many problems.
7. Significance of study
7.1 ImportanceMy research paper is helpful on macro and micro level .After reading this reader will be able to know the importance of trade and energy sector. when national level mean my country people read it then they easily come to know the reasons and facts of success and this paper is also helpful for international level because there is a lot of examples are given in my article about international countries and this topic is discussed by different ways and methods. It is also useful for upcoming researchers and students of research. Energy affects trade openness via various channels. Firstly, energy is an important input of production because machinery and equipments in the process of production require energy. Secondly, exporting or importing manufactured goods or raw material requires energy to fuel transportation. Without adequate energy supply, trade openness will be adversely affected. Consequently, energy is an important input in trade expansion and adequate consumption of energy is essential to expanding trade via expanding exports and imports. The relationship between trade openness and energy consumption is important. If energy plays its key role to flow exports or imports then any policies aiming at reduction energy consumption such as energy
conservation policies will negatively impact the flow of exports or imports and hence, reduce the benefit of trade openness. The bidirectional causal relationship between trade openness and energy consumption suggests in adopting energy expansion policies because energy consumption stimulates trade openness and as result, trade openness affects energy consumption (Sadorsky, 2011). The energy conservation policies will not have an adverse effect on trade openness if causality is running from trade openness to energy consumption or neutral effect exists between trade openness and energy consumption (Sadorsky, 2011).
7.2 National level Openness and trade liberalization influenced high rates of growth for the developing countries.Liberalization and integration took place in the economies of almost all the developing countriesDuring the late 80s and early 90s, in the previous century, on the inspiration of internationalDonor agencies to implement the structural adjustment programs. It is a well admitted factThat along with trade variables industrial value added work as an impetus affecting economicgrowth , positively. Pakistan also adopted the measures and policies to liberalize trade as a resultof Washington consensusIn the case of Pakistan, Riaz (1984) investigated the relationship between EC and EG using log linear regression analysis. The regression analysis of the energy-growth relationship has shown independence between socioeconomic variables and EC. Masih and Masih (1996) found a co-integrated relationship between EC and GDP in India, Pakistan, and Indonesia, but no such evidence in the case of Malaysia, Singapore, and the Philippines. Yang (2000) investigated the causal relationship between GDP and EC—including that of coal, natural gas, and electricity—analyzing the aggregate as well several disaggregated categories and found a bidirectional causality between total EC and GDP in India; in the case of Pakistan and Indonesia, GDP was found to cause EC. Anjum and Butt (2001) found that EG caused total EC, but further investigation indicated that EG did not lead to growth in petroleum consumption, while in the case of the gas sector, neither EG nor gas consumption affected each other. In the power sector, however, electricity consumption was found to lead to EG without feedback. Finally, EC was found to directly cause employment. Alam and Butt (2002) concluded that EC, EG, capital, and labor were co-integrated and that causality ran from EC to EG in the short and long run.
7.3 International level Energy consumption in the world increases parallel to technological development, increase in trade and population growth. The world average energy consumption was 1454 Kg of oil equivalent per capita in 1980 while the amount increased to 1852 Kg of oil equivalent per capita 4
in 2015 According to American Energy Information Administration (EIA) and to the International Energy Agency (IEA), the worldwide energy consumption will on average continue to increase by 2% per year. There are few studies that examined the relationship between energy consumption and economic growth (Masih and Masih 1996, Yang 2000, Narayan et al. 2008), energy consumption and exports (Narayan and Smyth 2009, Lean and Smyth 2011, Halicioglu 2010; Hammad et al. 2015a). However, the relationship between trade openness and energy consumption is still under studied. The objective of this study is to fill this gap by investigating the relationship between trade openness and energy consumption using global data of 91 high, middle
and low-income countries for the period 1980-2015. The pooled mean group and mean group models are used to show non-linear relationship between
8. Literature review
8.1 Background
There are few studies that examined the relationship between energy consumption and economic growth (Masih and Masih 1996, Yang 2000, Narayan et al. 2008), energy consumption and exports (Narayan and Smyth 2009, Lean and Smyth 2011, Halicioglu 2010; Shahbaz et al. 2013a). However, the relationship between trade openness and energy consumption is still under studied. The objective of this study is to fill this gap by investigating the relationship between trade openness and energy consumption using global data of 91 high, middle and low-income countries for the period 1980-2015. The pooled mean group and mean group models are used to show non-linear relationship between trade openness and energy consumption.
8.2 DefinitionThe relationship between trade openness and energy consumption is important. If energy plays its key role to flow exports or imports then any policies aiming at reduction energy consumption such as energy conservation policies will negatively impact the flow of exports or imports and hence, reduce the benefit of trade openness. The bidirectional causal relationship between trade openness and energy consumption suggests in adopting energy expansion policies because energy consumption stimulates trade openness and as result, trade openness affects energy consumption (Sadorsky, 2011). The energy conservation policies will not have an adverse effect on trade openness if causality is running from trade openness to energy consumption or neutral effect exists between trade openness and energy consumption (Sadorsky, 2011). Energy consumption in the world increases parallel to technological development, increase in trade and population growth. The world average energy consumption was 1454 Kg of oil equivalent per capita in 1980 while the amount increased to 1852 Kg of oil equivalent per capital.
8.4 Relation of variables
(1). TRADE
Openness to trade has been considered as an important determinant of economic growth and aWell debated issue in the recent growth literature. Initially, the developing nations of the worldFollowed restrictive trade policies but with passage of time and emergence of globalization, all
the nations realized the need to liberalize to their economies in terms of trade openness. Trade ofa country is a key determinant for the improvement of a country’s industrialization. Moreover,Development experienced by a country brings some changes in trade structure on the basis ofEndowments and comparative advantage (Hultman, 1967).
(2).ENERGY CONSUMPTION
Energy plays a crucial role in the economic development of a country. It enhances the productivity of factors of production and increases living standards. It is extensively recognized that economic development and energy consumption are interdependent.1 The energy crisis of the 1970s and persistently high energy prices, particularly oil prices, have had a significant impact on the economic activity of developing economies. The key question in energy economics, however, is whether economic growth (EG) leads to energy consumption (EC) or whether EC leads to EG. Although the causal relationship between EC and economic growth (EG) has been widely studied over the last 3 decades, the empirical evidence is not without controversy.
(3). TRADE AND CONSUMPTION WITH ECONOMICAL GROWTH
Energy affects trade openness via various channels. Firstly, energy is an important input of production because machinery and equipments in the process of production require energy. Secondly, exporting or importing manufactured goods or raw material requires energy to fuel transportation. Without adequate energy supply, trade openness will be adversely affected. Consequently, energy is an important input in trade expansion and adequate consumption of energy is essential to expanding trade via expanding exports and imports. The relationship between trade openness and energy consumption is important. If energy plays its key role to flow exports or imports then any policies aiming at reduction energy consumption such as energy conservation policies will negatively impact the flow of exports or imports and hence, reduce the benefit of trade openness. The bidirectional causal relationship between trade openness and energy consumption suggests in adopting energy expansion policies because energy consumption stimulates trade openness and as result, trade openness affects energy consumption (Sadorsky, 2011). The energy conservation policies will not have an adverse effect on trade openness if causality is running from trade openness to energy consumption or neutral effect exists between trade openness and energy consumption (Sadorsky, 2011). Energy consumption in the world increases parallel to technological development, increase in trade and population growth. The world average energy consumption was 1454 Kg of oil equivalent per capita in 1980 while the amount increased to 1852 Kg of oil equivalent per capita 4
in 2013 According to American Energy Information Administration (EIA) and to the International Energy Agency (IEA), the worldwide energy consumption will on average continue to increase by 2% per year.
9. THEORETICAL FRAME WORK
9.1 DEPENDENT VARIABLE
1-Economy
2-Energy consumption
In this frame work Economy is dependent variable, because economy grows by trade and other ways .Economy depends on income. Another dependent variable in this article is Energy consumption because its depend on economy and trades and income.
9.2 INDEPENDENT VARIABLE
1-Trade In this article, there is only one independent variable because if an economy does trade then economy gets benefits but if not also got nothing. Trade is independent on macro level.
10. Methodology
ENERGY SECTOR: This study uses annual data from 1980 to 2013. GDP is measured in millions of Pakistan rupees and EC in kiloton (kt) of oil equivalent. GDP is used as a proxy variable for EG. Data for both variables are taken from Causality between energy Consumption & Economic Growth 47
TRADE SECTOR : The results of unit root are reported below in Table . It is seen from the table that all the
variables i.e. exports, imports, GDP and industrial value added are non stationary at level andare stationary at first difference. It is concluding that all the variables are integrated of order one.
10.3 DATA COLLECTION TECHNIQUES
We collect data in qualitative way . we choose some of the countries in the world which Are most nominated economies in the world .
10.4 Data analysisAll the data presented is through creativity except those which we mention in references. We also have collected the data through websites and research article, which are given below in references.
10.5 Reliability of Data
All the data is given correct authentic and by own creativity. It will be useful in the field of economics and also applicable for research purposes.
11. LIMITATION OF STUDY
11.1 WEAKNESS OF MY STUDY
This study is applicable only in the field of economics in macro level. Due to lack of resources, I can’t highlights the all topics and issues which a unstable economy faces in trade sector and energy sector .. it is a limited data not all over captured in this research paper . There are a few data of world good nominated economies not all of the other weak and poor economies. I do my best but i can’t cover all of them.
12. ETHICAL CONSIDERATION
I HAVE WORKED ON IT FOR THE PURPOSE OF MY MSC ECO, DEGREE IN THE SUBJECT OF BRM. IT WILL NOT BE APPLICABLE IN ANY DEGREE PURPOSES. IT IS ONLY FOR UPCOMING RESEARCH STUDENTS.
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APPENDIX
Different economies situations