Energy Consumption and Economic Growth in the United States

Abstract

We study the relationship between energy consumption and real GDP in the United States using a multivariate time-varying model [1973Q1-2014Q1]. We show that the combination of disaggregation into specific fuels and time variation gives more nuanced results than the alternatives for the U.S. Specifically, we find that the Granger causal relationship between total energy and real U.S. GDP is bi-directional through much of the 1990s (the feedback hypothesis) but uni-directional running from real U.S. GDP to energy consumption in the 2000s (the conservation hypothesis). Similar pattern of changes was observed in the causal relationship between coal consumption and real U.S. GDP. Oil consumption largely supports the feedback hypothesis, especially after 2009. Natural gas consumption shows a brief period supporting the conservation hypothesis in the early-to-mid 2000s, but primarily supports the neutrality hypothesis that natural gas consumption and economic growth are independent.

Keywords: energy consumption, substitution effect, economic activity, Granger causality, time-varying

JEL Classification: C32, O13, Q43