Further evidence on the trade-energy consumption nexus in OECD countries

The previous literature on the impact of trade on energy consumption has yielded inconclusive results. However, recent studies provide evidence of a nonlinear relationship between trade and energy consumption. Unlike previous studies, we employ a panel framework with allowance for heterogeneity and cross-sectional dependence to investigate the trade-energy consumption nexus for OECD countries for the period 1990-2015. Our results show that the impact of trade on energy consumption exhibits an inverted U-shaped pattern and the nonlinear relationship is robust to estimation methods. On the other hand, the results from linear specifications reveal the importance of cross-sectional dependence in explaining the positive role of trade on energy consumption. In addition, these impacts are consistent across different measures of trade.