Energy Consumption and Real Income: A Panel Cointegration Multi-country Study

The direction of the causality between energy consumption and income is an important issue in the fields of energy economics, economic growth, and policies toward energy use. The seminal work on the relations between energy consumption and aggregate income is Kraft and Kraft (1978). An extensive literature has followed on, including Akarca and Long (1980), Yu and Choi (1985), Erol and Yu (1988), Abosedra and Baghestani (1991), Hwang and Gum (1992), Masih and Masih (1996, 1997), Lee (2005), Soytas and Sari (2003), and Joyeux and Ripple (2007). The findings of these papers, and others, provide anything but consensus on either the existence of relations or direction of causality between the variables. The work in this paper extends this research by analysing the cointegrating and causal relations between income and three energy consumption series based on panel data and the latest panel methodologies. These relations are analysed for the 30 OECD countries and 26 non-OECD countries. The results support a finding of causality flowing from income to energy consumption for developed and developing economies, alike. JEL Classifications: I31, C33, Q43.