Energy consumption, output and trade in South America

This study uses panel cointegration regression techniques to examine the relationship between energy consumption, output and trade in a sample of 7 South American countries covering the period 1980 to 2007. Panel cointegration tests show a long-run relationship between 1) output, capital, labor, energy, and exports and 2) output, capital, labor, energy, and imports. Short-run dynamics show a bi-directional feedback relationship between energy consumption and exports, output and exports and output and imports. There is evidence of a one way short-run relationship from energy consumption to imports. In the long-run there is evidence of a causal relationship between trade (exports or imports) and energy consumption. These results have implications for energy policy and environmental policy. One important implication of these results is that environmental policies designed to reduce energy use will reduce trade. This puts environmental policy aimed at reducing energy consumption at odds with trade policy.

► I study the relationship between energy use, output and trade in South America. ► A panel VECM model is proposed and estimated. ► Short-run dynamics show a feedback relationship between energy use and exports. ► In the long-run there is evidence of a causal relationship between trade and energy. ► Environmental policies that reduce energy consumption will affect trade.