Natural gas, trade and sustainable growth: empirical evidence from the top gas consumers of the developing world

ABSTRACT

Natural gas is the key non-renewable source of energy for a low-carbon economy. The research applies heterogeneous panel techniques to investigate the impact of natural gas consumption on economic growth across a panel of top 15 natural gas consumers of the developing world. We establish long-run dynamics with cross-sectional dependence and heterogeneity across the sample countries. The long-run output elasticities suggest that the natural gas consumption and trade variables have significant positive effect on the output in a panel of developing economies. Further, we establish feedback relationship among gas consumption, output and trade in the short-run. Given the significance of natural gas as the low-emission source of energy, we suggest governments and policy advisers of these major natural gas consumers to focus on developing pipeline infrastructure for adequate supply, reforming natural gas sector with a competitive price structure to combat excess demand in individual natural gas market. With trade integration, majority of these countries need to incorporate these initiatives to improve the technologies such as combined cycle power plant technology and value-added chemical production technology to achieve sustainable economic growth.

KEYWORDS:

• Natural gas consumption
• sustainable economic growth
• trade
• developing economies
• cross-sectional dependence
• heterogeneity

JEL CLASSIFICATION:

• F14
• O47
• P28
• Q43

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ In 2011, CO₂ emission from coal combustion accounted 44% (13.7 giga tons or Gt CO₂) while CO₂ emission from oil and natural gas were for 35% (11.1Gt CO₂) and 20% (6.3Gt CO₂), respectively (EIA 2011).

² BP Energy Outlook, 2014.

³ Kum, Ocal and Aslan (2012) have an excellent summary table on the literature (see page 2362, Table 1).

⁴ Brown and Yücel (2008) and others analyse the relation between natural gas and oil prices. We refrain here from this literature as our focus is to explain the role of energy in determining growth. Gas prices for these developing countries are not available for our sample period.

⁵ A number of studies in the prevailing literature use only gas consumption, as an energy input, in the production function, e.g. see Apergis and Payne (2010), Heidari, Katircioglu and Saeidpour (2013) and Solarin and Shahbaz (2015).

⁶ In this study, trade, trade openness and trade liberalization are used interchangeably.

⁷ We have used the linear interpolation method to convert annual series into quarterly frequency. Increasing the frequency of the series in the sample will raise the power of statistical tests and provide more reliable and robust results.

⁸ Growth rates are calculated using original data.

⁹ Alam and Paramati (2015) have employed Pedroni (1999, 2004) panel cointegration test to examine the long-run equilibrium relationship among the variables.