Causality between energy and output in the long-run

• Published in: Energy economics Vol. 39; pp. 135 - 146
• Main Authors: Stern, David I., Enflo, Kerstin
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.09.2013; Elsevier; Elsevier Science Ltd
• Subjects: Applied sciences; Breaking; Causality; Cointegration; Cointegration analysis; Economic data; Economic development; Economic growth; Economic History; Economics; Economics and Business; Ekonomi och näringsliv; Ekonomisk historia; Energy; Energy consumption; Energy economics; Energy market; Energy policy; Energy prices; Energy use; Energy utilization; Exact sciences and technology; General aspects; General, economic and professional studies; Granger causality; Macroeconomics; Mathematical models; Methodology. Modelling; Panels; Prices; Samhällsvetenskap; Social Sciences; Studies; Sweden; Time series; Vices; Sweden; Q43; C52; Sweden; C32; Energy; Cointegration; Macroeconomics; Granger causality
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2013.05.007

Though there is a very large literature examining whether energy use Granger causes economic output or vice versa, it is fairly inconclusive. Almost all existing studies use relatively short time series, or panels with a relatively small time dimension. We apply Granger causality and cointegration techniques to a Swedish time series dataset spanning 150years to test whether increases in energy use and energy quality have driven economic growth or vice versa. We show that these techniques are very sensitive to variable definition, choice of additional variables in the model, sample periods and size, and the introduction of structural breaks. The relationship between energy and growth may also have changed over time – energy causes output in the full sample while output causes energy use in recent smaller samples. Energy prices have a more robust causal impact on both energy use and output. •We test for causality between energy and output using 150years of data from Sweden.•This is the longest time series used in this literature to date.•In the full sample energy causes output as do energy prices.