Global estimates of energy-growth nexus: Application of seemingly unrelated regressions

As the world struggles to emerge from a global recession and financial crisis, countries are looking for solutions to improve domestic economic performance and put people back to work. Global energy demand and prices have been resilient during the recession, leading policy-makers in countries with the potential to produce energy to look to that sector as a potential engine for economic growth. The objective of this study is to undertake an empirical study on linkages among energy consumption, economic growth, FDI, relative price and financial development (i.e., broad money supply - M2) in low income, middle income, high income non-OECD, high income OECD, South Africa, Middle East and North Africa (MENA) and the aggregate data of the World over a period of 1975-2011. Data is analyzed by the Im-Pesaran-Shin (IPS) test of unit root to find out the order of integration. The long-run relationship is investigated through the Pedroni [37] test of panel cointegration. At last, the Seemingly Unrelated Regression (SUR) method is used for estimation of the impact of growth factors on energy consumption in these regions. The results reveal that each variable seem to have a unit root at level, so we could investigate cointegration of the series at level. On the basis of Pedroni test, we can bring to a close that series are cointegrated. The results of seemingly unrelated regression (SUR) suggests that GDP per capita has a positive impact on energy consumption in low income, middle income, South Africa, MENA and aggregate data of the World. However, in high income OECD and non-OECD regions, there is no significant relationship been found in both regions. FDI plays a pivotal role in increasing energy demand in middle income, high income OECD and non-OECD region which implies that whatever other benefits may accrue from FDI, it should not be expected to generate sufficient energy in South Africa, MENA and the World directly. FDI enhancement policies should be supplemented to stimulate growth in those regions. Broad money supply exerts positive impact on energy demand in low income, middle income, high income non-OECD and MENA regions. Finally, relative prices has either a positive impact i.e., middle income region and/or a negative impact on energy consumption i.e., low income, high income OECD and MENA region. The results conclude that lower energy prices reduce input costs for nearly all goods and services in the regions, thus making them more affordable.