Does energy use cause economic growth in Latin America?

Abstract

This study analyses the relationship between energy consumption and economic growth, using annual panel data from 16 Latin American countries over the period 1971–2001. We use a random coefficient (RC) method to control for both finite sample and sample-heterogeneity biases. Our results show (1) a long-run relationship between real GDP, energy consumption, labour force and real capital stock and (2) a long-run unidirectional causality running from energy to economic growth. These results support the energy-driven growth hypothesis.

Keywords:

• energy consumption
• economic growth
• growth hypothesis

JEL Classification:

• C22
• Q41
• Q43

Notes

¹ Because of a methodological change in the reporting of labour force data by the World Bank, it was not possible to extend the sample beyond 2001.

² In the case of the coefficients on energy, Venezuela has the wrong sign, which is due to the data quality.

³ Tests are available upon request.

⁴ According to Table 3, there are only two cases (Mexico and Bolivia) where causality does not exist (the neutrality hypothesis).