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On the restricted form of energy-growth nexus: a global level VECM approach and the historical structural breaks

Luís Miguel Marques (Department of Management and Economics, University of Beira Interior, Covilhã, Portugal)
José Alberto Fuinhas (Faculty of Economics, University of Coimbra, Coimbra, Portugal)
António Cardoso Marques (Department of Management and Economics, University of Beira Interior, Covilhã, Portugal)

International Journal of Energy Sector Management

ISSN: 1750-6220

Article publication date: 6 May 2020

Issue publication date: 6 October 2020

118

Abstract

Purpose

The purpose of this paper is to focus on global energy consumption using the economic growth nexus, the prevalent energy hypothesis at a global level and the impact of the main historical events assessed for the period from 1965 to 2015.

Design/methodology/approach

Given the confirmed presence of endogeneity and cointegration between energy consumption and economic growth, a vector error correction with structural dummies model was used. Furthermore, the impulse-response functions and variance decomposition were computed to evaluate the variables’ dynamics.

Findings

Bi-directional causality running from energy consumption to economic growth was found, both in the short and long-run, supporting the feedback hypothesis. It is proved that the 2008 crisis impacted on the global energy–growth nexus. Furthermore, there is evidence of the impact of the 1990s oil price shock on the nexus. Innovations in energy consumption have a positive impact on economic growth; however, this impact tends to be null in the long run.

Practical implications

The results suggest that at a global level, any energy policy should be carefully designed in order not to hamper economic growth. Countries should not remain indifferent to the policies that other countries might follow. Very few historical crises impacted on the global energy–growth nexus.

Originality/value

This paper offers a different approach to the study of the energy–growth nexus. The energy–growth nexus is analysed in the major macroeconomic aggregate. Global variables reveal their relevance as a benchmark in the energy–growth nexus. Furthermore, this paper arrives at some conclusions about how historical crises impact on global relationships.

Keywords

Acknowledgements

The financial support of the NECE – Research Unit in Business Science and Economics, project UIDB/04630/2020 and the CeBER – Centre for Business and Economics Research, project UIDB/05037/2020 sponsored by the FCT – Portuguese Foundation for the Development of Science and Technology, Ministry of Science, Technology and Higher Education is acknowledged. Authors thank the anonymous reviewer for their useful comments and suggestions.

Citation

Marques, L.M., Fuinhas, J.A. and Marques, A.C. (2020), "On the restricted form of energy-growth nexus: a global level VECM approach and the historical structural breaks", International Journal of Energy Sector Management, Vol. 14 No. 6, pp. 1205-1220. https://doi.org/10.1108/IJESM-09-2019-0009

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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