Energy, human capital and economic growth in Asia Pacific countries - Evidence from a panel cointegration and causality analysis

- We study the causal link between energy and growth in 16 AP countries for 1970-2011.
- Human capital is for the first time incorporated into the multivariate framework.
- Recent panel methods allowing for cross sectional dependence is used.
- Bootstrap panel Granger causality test results find GDP Granger causing energy use in the region.
- The energy-growth relationship varies for individual countries.

This paper examines the cointegration and causal relationship between energy consumption and economic development in 16 Asia Pacific countries over the period 1970-2011 using the augmented production function which considers not only physical capital and labor but also human capital. This is likely among the first of the energy-growth nexus literature to include human capital in the multivariate framework. Using recently developed panel unit root test and cointegration test that allow for cross-sectional dependence, this paper finds a long-run cointegrating relationship between these variables. Continuously-updated fully modified (Cup-FM) estimates are subsequently compared with panel heterogeneous fully modified ordinary least squares (FMOLS) results to confirm the importance of accounting for interdependence across countries. The bootstrap panel Granger causality test results find economic growth Granger cause energy use in the region but the relationship varies for individual countries.