Energy Consumption and Economic Growth: A Panel Cointegration Analysis for Developing Countries

The aim of this paper is to examine the long-run relationship between energy consumption and economic growth for 80 developing countries from 1990 to 2009. For this purpose, methods of panel unit root test, panel cointegration test and panel dynamic ordinary least squares (DOLS) are applied. These 80 countries are divided into three income groups, namely, upper middle income countries, lower middle income countries and low income countries. The empirical results reveal a long-run cointegrated relationship between energy consumption and economic growth for the whole panel of countries as well as for each group of countries. We find the strong relation running from energy consumption to economic growth for upper middle income countries and lower middle income countries, and a strong relation which runs from economic growth to energy consumption for low income countries. These findings clearly indicate that energy consumption had a positive and statistically significant impact on economic growth in the long-run for these countries.