Interactions between energy consumption, international trade, and real income in Canada: An empirical investigation from a new version of the Solow growth model

ABSTRACT

This study investigates the empirical relationship between energy consumption, international trade, and real income in Canada which has an important role in global energy and trade. It employs bound tests to level relationships and conditional error correction models through ARDL specification to a new version of the Solow Growth model. Using annual data of the 1960–2010 period, results reveal a long-term relationship between energy consumption, international trade, and real income in Canada. It is also found that energy exporting activity is the determinant (driver) of energy consumption through the channel of real income and energy consumption is the determinant (driver) of exports through the channel of real income in the long term of the Canadian economy. Exports and energy use are the determinants (drivers) of real income in the long term of the Canadian economy; therefore, as conditional Granger causality tests suggest there is feedback relationship between energy consumption, international trade, and real income in the long term of the Canadian economy. The present study suggests that any energy conservation policies are likely to have negative influence on output and international trade in Canada.

KEYWORDS:

• Bounds test
• Canada
• energy consumption
• International trade
• Solow growth model

Notes

¹ Three models with those dependent variables which are integrated of order one, I (1), as required by bounds tests of Pesaran et al. (2001).

² For detailed information, please refer to Pesaran, et al. (2001), pp. 295-296.