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Causality Between Energy and Output in the Long-Run

David Stern () and Kerstin Enflo

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Though there is a very large literature examining whether energy use Granger causes economic output or vice versa this literature is fairly inconclusive. Almost all existing studies use relatively short time series or panels with a relatively small time dimension. Additionally, many recent papers continue to use what seem to be misspecified models. We apply Granger causality and cointegration techniques to a Swedish time series data set on energy and economic growth spanning 150 years to test whether increases in energy use and energy quality have driven economic growth. We show that these techniques are very sensitive to variable definition, choice of additional variables in the model, and sample periods. All of the following appear to make a finding that energy causes growth more likely: using multivariate models, defining variables to better reflect their theoretical definition, using larger samples, and including appropriate structural breaks. However, it is also possible that the relationship between energy and growth has changed over time and that results from recent smaller samples reflect this. Energy prices have a significant causal impact on both energy use and output.

Keywords: Energy; macroeconomics; Granger causality; cointegration; causality; time series (search for similar items in EconPapers)
JEL-codes: Q43 C32 C52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene
Date: 2013-01
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Journal Article: Causality between energy and output in the long-run (2013) Downloads
Working Paper: Causality Between Energy and Output in the Long-Run (2013) Downloads
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