Publication:
Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modelling techniques
Abstracts views
134
Views & Download
2
Date
1996
SDG:
Abstract
Unlike previous studies on the causal relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration (i.e. long-term equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multivariate cointegration tests preceded by various unit root or non-stationarity tests, we test for cointegration between total energy consumption and real income of six Asian economies: India, Pakistan, Malaysia, Singapore, Indonesia and the Philippines. Non-rejection of cointegration between variables rules out Granger non-causality and imples at least one way of Granger-causality, either unidirectional or bidirectionial. Secondly, by using a dynamic vector error-correction model, we then analyse the direction of Granger-causation and hence the within-sample Granger-exogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables including its own, in the bivariate system. Results based on these tools of methodology indicate that while all pair-wise relationships shared common univariate integrational properties, only relationships for three countries (India, Pakistan and Indonesia) were cointegrated. For these countries, temporal causality results were mixed with unidirectional causality from energy to income for India, exactly the reverse for Indonesia, and mutual causality for Pakistan. The VDCs were not inconsistent with these results and provided us with an additional insight as to the relatively more dominant direction of causation in Pakistan. Simple bivariate vector-autoregressive models for the three non-cointegrated systems did not indicate any direction of causality, significantly in either direction.
Keywords
Energy consumption , Income , Granger temporal causality , Integration , Cointegration
Citation
Mohammed Masih, A. M., & Masih, R. (1996). Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modelling techniques. Energy Economics, 18(3), 165-183. https://doi.org/10.1016/0140-9883(96)00009-6
Publisher
Elsevier Science B.V.