A Panel Data Analysis on Energy Consumption and its Impact on Economic Growth: Empirical Evidence from Twenty Developing Economies

ABSTRACT: This study examines the panel granger causality test between total primary energy consumption per capita and Economic growth. The long run and short run relationship was also tested by adopting the Pedroni Residual Co-integration test which suggested no co-integration. Meaning, there is no long run relationship between the two variables. This test was done using annual data from 1992-2011 for twenty 20 developing economies around the world. All evidence gathered from this empirical analysis was through the application of this tests-Pedroni residual co-integration test, Phillip-Peron (PP) test, Augmented Dickey-Fuller (ADF) test, Stacked (common coefficient) causality test, Dumitrescu-Hurlin (Heterogeneity or unequal) Panel causality test and the Heterogeneous Panel VAR test. The final results obtained showed that no causality was found between the two variables. However, further testing for shocks using the heterogeneous Panel VAR test revealed a short run relationship running from primary energy consumption to economic growth for the countries mentioned. The study therefore recommends government policies towards energy development and effective policies towards shocks in the short run without neglecting its effect in the long run. Keywords: Primary Energy consumption, Economic growth, Causality, Panel VAR. …………………………………………………………………………………………………………………………