Causality Between Energy and Output in the Long-Run

CAMA Working Paper 01/2013

40 Pages Posted: 18 Jul 2013

See all articles by David I. Stern

David I. Stern

Australian National University (ANU) - Crawford School of Public Policy

Kerstin Enflo

Lund University; Universitat Pompeu Fabra

Date Written: January 1, 2013

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

JEL Classification: Q43, C32, C52

Suggested Citation

Stern, David I. and Enflo, Kerstin, Causality Between Energy and Output in the Long-Run (January 1, 2013). CAMA Working Paper 01/2013, Available at SSRN: https://ssrn.com/abstract=2295205 or http://dx.doi.org/10.2139/ssrn.2295205

David I. Stern (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Kerstin Enflo

Lund University ( email )

Box 117
Lund, SC Skane S221 00
Sweden

Universitat Pompeu Fabra

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

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