Clean energy consumption and economic growth nexus: asymmetric time and frequency domain causality testing in China

ABSTRACT

This article examines the symmetric and asymmetric causal relationships between clean energy consumption and economic growth in time and frequency domains for China. The results of both symmetric and asymmetric causality analysis suggest that clean energy consumption does not cause economic growth. This implies that the level of clean energy consumption in China seems to be optimal and beyond this level, it does not affect the growth level of the country. However, examination of the causality linkage from economic growth to clean energy consumption indicates medium and long-run evidence of a frequency-based symmetric causal relationship. Our asymmetric analysis makes this relation clearer such that only the adverse shocks to economic growth lead to a decline in the clean energy consumption level. This inference is complemented with the estimated causal parameter of 0.13, indicating that a 1% decrease in economic growth results in a 0.13% reduction in the level of clean energy consumption.

KEYWORDS:

• Frequency domain causality
• asymmetry
• Clean energy consumption
• economic Growth
• China

Conflict of Interest

No sources of funding were used to conduct this study or prepare this manuscript. The authors have no conflicts of interest that are related to the content of this study.

Notes

¹ Nuclear energy is considered as clean energy; however, its inclusion in the renewable energy class is a subject of major debate (see Johnson 2009). Hence, its role in the relevant literature has usually been examined individually.

² Although the structural break unit root test of Zivot and Andrews can improve the deficiency of the conventional unit root tests, this method is only able to model single structural breaks; hence, to provide more reliability in the results of the unit root tests, we also apply the GLS-based unit root tests with multiple structural breaks of Carrion-i-Silvestre, Kim, and Perron (2009). The lack of reporting of the results stem from the fact that our conclusion on the order of integration of variables has not been changed. However, results are available from the authors upon request.

³ We also examine the presence of possible structural breaks. To this end, we applied the Bai and Perron (2003) tests of multiple structural breaks to the equations of the VAR (2) model containing our two variables. We found two structural changes in 1984 and 2004. When we considered these regime changes in causality analysis, the evidence of a causality nexus from economic growth to clean energy consumption is only detected for the period of 1985 to 2004. However, the results for the other time intervals did not change. Hence, to save space, we have not reported them. The results are available upon request.

⁴ The full results of the NARDL have not formally reported in the paper to save space; however, complete details of these findings are available upon request from the authors.