gdp/energy link - rome 14th iaee european energy conference
DESCRIPTION
The work of the Shift Project focuses on the link between energy consumption and the GDP growth. The econometrical research confirms the standpoint defended by ecological economists and introducing primary energy as a key factor that drives GDP growth. The results show that an increase of 10% of energy use per capita induces, on average, an increase (resp. decrease) of about 6 to 7% of GDP per capita. The research also concludes that the causality relation goes from the consumption of energy to growth in both the short and long-run. These findings sharply contrast with the custom, popular in macroeconomics, that consists in calibrating the output elasticity of energy according to the cost share of energy. In most countries, this practice leads to the postulate that energy elasticity should be close to 0.08% on average.TRANSCRIPT
How Dependent Is Growth From Primary Energy?
An Empirical Answer on 33 Countries
www.theshiftproject.org
Gael GiraudCNRS, PSE, CES, Labex REFI
Zeynep KahramanThe Shift Project
IntroductionWhy 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 ?
IntroductionWhy is this relationship important ?
Sources: BP statistical Review, 2012, Shilling et al. 1977, EIA, 2012, and World Bank (GDP), 2012.
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GD
P b
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Oil Price per barrel in constant 2011 $
World Oil prices and GDP (1965 – 2011)
IntroductionWhy is this relationship important ?
Source : BP statistical review, 2012, Shilling et al. 1977, EIA, 2012, and World Bank (GDP), 2012.
y = 0.6548x + 0.0103
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rld
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c P
rod
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wth
Primary Energy Consumption Growth
Comparison of the World Gross Domestic Product growth with the World Primary Energy Consumption Growth
IntroductionWhy is this relationship important ?
Source: EIA, http://www.eia.gov/totalenergy/data/annual/pdf/sec1_13.pdf
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U.S Energy Expenditures as Share of GDP
Empirical methodologyEstimation of the long run relation
lnYi,t = βi,0+ βi,1 lnCi,t+ βi,2 lnEi,t-1+ βi,3 lnKi,t+εi,t
*All the variables are per capita
The main equation:
Empirical methodologyEstimation of the long run relation
An ECM approach:
∆𝑦it= ϕi𝑦i,t−1 +β′1𝑐it +β′2𝑒it−1 +β′3𝑘it+
𝑗=1
𝑝−1
𝜆∗ ij∆𝑦i,t−j +
𝑗=0
𝑞−1
𝛿 ∗′ 1j∆𝑐i,t−j
+
𝑗=1
𝑞−1
𝛿 ∗′ 2j∆𝑒i,t−j +
𝑗=0
𝑞−1
𝛿 ∗′ 3j∆𝑘i,t−j + μi + αit +ε
"ϕi" is the error correction term, "βi" is long-run coefficients
Empirical methodologyThe Data
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
Estimation of the long run relationThe Data
The analysis is based on a panel data covering the period from 1970 to 2011 for
33 countries.
Algeria France Netherlands
Argentina Germany Norway
Australia Greece Philippines
Austria Hungary Portugal
Belgium Iran South Korea
Brazil Ireland Spain
Canada Italy Sweden
Chile Japan Thailand
China Luxembourg United States
Costa Rica Malaysia United Kingdom
Denmark Mexico Venezuela
Time series properties of the dataCross section dependence, Unit Root and Co-integration tests
1. Cross Section Dependence Test of Pesaran
2. Unit Root Tests:• First Generation:
• Levin, Lin and Chu test • Breitung• Im, Pesaran and Shin• ADF-Fisher • Philips Perron – Fisher
• Second Generation:• CIPS test
3. Co-integration Tests:• Pedroni’s residual co-integration tests• Westerlund test
common
unit root process
Individual
unit root process
Emprical ResultsCo-integration tests results
Deterministic intercept and trend
No deterministic intercept and trend
Alternative hypothesis: common AR coefs. (within-dimension)
Statistic Prob.
Panel v-Statistic 19.10098 0.0000
Panel rho-Statistic -5.165067 0.0000
Panel PP-Statistic -10.56038 0.0000
Panel ADF-Statistic -9.640764 0.0000
Statistic Prob.
Panel v-Statistic 12.12852 0.0000
Panel rho-Statistic -12.66436 0.0000
Panel PP-Statistic -17.26987 0.0000
Panel ADF-Statistic -16.24284 0.0000
Alternative hypothesis: individual AR coefs. (between-dimension)
Statistic Prob.
Group rho-Statistic -2.675141 0.0037
Group PP-Statistic -9.576716 0.0000
Group ADF-Statistic -8.976859 0.0000
Statistic Prob.
Group rho-Statistic -12.03752 0.0000
Group PP-Statistic -20.42889 0.0000
Group ADF-Statistic -18.09532 0.0000
Pedroni Residual Cointegration Test
Value Z value P value Robust p value
Gt -4.130 -13.580 0.000 0.000
Ga -18.174 -9.531 0.000 0.000
Pt -22.424 -11.338 0.000 0.000
Pa -18.275 -12.740 0.000 0.000
Westerlund panel cointegration test results
Emprical ResultsEstimation of the long run relation
Model: PMG MG CCEP
Dependent variable: ∆Yit
Energy consumption per capita
(Cit)
0.6543
(0.053)***
0.8083
(0.105)***
0.5195
(0.213)***
Energy efficiency
(Eit-1)
0.5860
(0.064)***
0.8090
(0.164)***
0.5164
(0.214)***
Capital formation per capita
(Kit)
0.1018
(0.016)***
0.0716
(0.016)
0.269
(0.016)***
Convergence coefficient
(Yit-1)
-0.5540
(0.085)***
-0.8433
(0.085)**
-0.5724
(0.214)***
Hausman test p value 0.2304
Results of long-run estimations
Emprical ResultsGranger Causality
Dependent Variable
Sources of causation (independent variables)
Short run Long runΔY ΔE ΔC ΔK ECT
ΔY - 10.93** 26.38*** 299.26*** -0.554***
ΔE 1754.6*** - 9526.42*** 8.37** -1.196***
ΔC 4.07 3.20 - 1.59 -0.533 ΔK 5.14 4.90 63.35*** - -0.273***
Panel causality test results
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 cointegrate and energy use univocally Granger causes GDP in the long-run
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