Coal consumption and economic growth in Indonesia

ABSTRACT

This article attempts to examine the short- and long-run causal relationship between coal consumption and economic growth, using Indonesia as a specific case study. To this end, annual data covering the period 1965–2010 are employed and tests for unit roots, co-integration, and Granger-causality based on error-correction model are provided. The overall results reveal that there exists bidirectional causality running from coal consumption to economic growth with feedback in Indonesia. This implies that an increase in coal consumption directly stimulates economic growth. Thus, in order not to make an adverse effect on economic growth, Indonesia should endeavor to overcome the constraints on coal consumption. Moreover, the study lends support to the argument that an increase in real income touches off increased coal consumption.

KEYWORDS:

• Coal consumption
• co-integration
• economic growth
• error-correction model
• Granger-causality
• unit root