Energy and economic growth in developing Asian economies

Abstract

The pivotal role of energy in the progression of economic growth cannot be overlooked. Given its importance to policymakers, the influence of energy use on economic growth is undeniably crucial and thus should be explored meticulously. This study empirically examines the impact of energy on economic growth within the production function framework of a panel of 10 developing Asian economies from 1990Q₁ to 2014Q₄. The pooled mean group, fully modified ordinary least squares, and dynamic ordinary least squares methods are implemented. Empirical results reveal that energy has a significant positive impact on economic growth, thereby suggesting that energy is an important factor of production in addition to human and physical capital. The implication of the finding suggests that all 10 Asian economies are energy dependent and thus can propel economic growth by sustaining energy supply, which can largely improve social welfare.

Keywords:

• Energy
• economic growth
• Asia

JEL CODES:

• Q4
• O4
• N75

Notes

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 For more details, see Solow (1957, 321)

2 The inflation threshold by Khan and Senhadji (2001) is 1%–3% for industrial countries and 11%–12% for developing countries, while Muzaffar and Junankar (2014) observed the case of 14 developing Asian countries to be between 7% and 14%.

3 The mathematical derivations of the PURTS, namely, the LLC, the IPS, and the ADF; panel cointegration tests, namely, Pedroni and Johansen Fisher; and estimators, namely, FMOLS, DOLS, and PMG, are given in the original work of those who developed these tests and methods and not demarcated in this study for brevity.

4 See Chontanawat (2010) and Inglesi-Lotz (2016)

5 Samargandi et al. (2014).

6 Although this study intends to use long-period data, which are commonly used for robust empirical examination, reliable balanced quarterly data for 25 years are available, which are satisfactory in the case of the panel data analysis. Particularly, balanced data on energy are only available up to 2014. Data for regression analysis are converted into the log form with the exception of the inflation rate, which is already in the annual growth rate form. A couple of negative investment values are ignored in the case of Indonesia and one in the case of Iran during the log transformation process.

7 Kim et al. (2010) and Muye and Muye (2017).

8 BP (2019)

9 Ausloos et al. (2019).

10 Bloom et al. (2018).

11 These results demonstrate that the speed of adjustment at 9% annually is sluggish and will take nearly 11 years toward the long-run equilibrium.

Additional information

Notes on contributors

Muhammad Azam

Muhammad Azam Khan received his PhD in Economics from the University of Peshawar, and Post Doctorate from the Department of Economics, University of Illinois at Urbana Champaign, USA. He is faculty member at the Department of Economics, Faculty of Business and Economics, Abdul Wali Khan University Mardan, KP-Pakistan. His research focuses on Development Economics, Monetary and Macroeconomics, Foreign Capital Inflows, and Energy and Environmental Economics. He has published several scholarly journal articles, and appointed as invited reviewer for many national and international referred journals.