Do APEC economies enjoy energy-led growth? Evidence from a Dynamic Panel Data Approach

Abstract

The energy-led growth hypothesis suggests that energy is one of the key determinants of economic growth. The theoretical and empirical studies have examined the causal relationship between energy consumption and economic growth and found that this relationship is one of interdependence rather than of unilateral causation. The objective of this study is to empirically examine the validity of energy-led growth hypothesis in the context of APEC economies. To infer the energy-led growth hypothesis, the study employed a dynamic panel cointegration, panel Granger causality and panel error-correction model. The study uses panel data on variables such as real GDP per capita, energy consumption, number of people employed, gross capital formation, human capital index and trade openness from 1990 to 2016. The empirical results confirm the validity of the energy-led growth hypothesis for APEC economies. Panel cointegration test outcomes support the long-term equilibrium link among the selected variables. Further, the empirical evidence of a dynamic panel error-correction model reveals a bi-directional causal relationship between energy consumption and economic growth in both the long and short run.