Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis

Faridul Islam (), Muhammad Shahbaz and Md. Mahmudul Alam ()

MPRA Paper from University Library of Munich, Germany

Abstract: Despite a bourgeoning literature on the existence of a long-run relationship between energy consumption and economic growth, the findings have failed to establish clearly the direction of causation. A growing economy needs more energy, which is exacerbated by growing population. Evidence suggests that financial development can reduce overall energy consumption by achieving energy efficiency. Economic growth and energy consumption in Malaysia have been rising in tandem over the past several years. The three public policy objectives of Malaysia are: economic progress, population growth and financial development. It is of interest to the policymakers to understand the dynamic interrelation among the stated objectives. The paper implements Auto Regressive Distributed Lag (ARDL) approach to cointegration to examine the existence of a long-run relationship among the series: energy consumption, population, aggregate production, and financial development for Malaysia; and tests for Granger causality within the Vector Error Correction Model (VECM). The results suggest that energy consumption is influenced by economic growth and financial development, both in the short and the long-run, but the population-energy relation holds only in the long run. The findings have important policy implications for balancing economic growth vis-à-vis energy consumption for Malaysia, as well as other emerging nations.

Keywords: Financial development; Energy consumption; ARDL; Economic growth (search for similar items in EconPapers)
JEL-codes: C32 O52 Q20 Q43 (search for similar items in EconPapers)
Date: 2011-01-19
New Economics Papers: this item is included in nep-ene, nep-fdg and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Financial Development and Energy Consumption Nexus in Malaysia: A Multivariate Time Series Analysis (2019)
Journal Article: Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis (2013)
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