Exploring the effects of energy consumption on output per worker: A study of Albania, Bulgaria, Hungary and Romania

• Energy has a short-run positive effect in Albania, Bulgaria, Hungary and Romania.
• A long-run positive elasticity is noted in Bulgaria and Romania.
• Output per worker cause energy per worker in the four countries.
• A unidirectional causality from capital to energy is noted for Albania and Romania.

In this article, we explore the long-run cointegration between output, capital and energy consumption, in per worker terms, for Albania, Bulgaria, Hungary and Romania. We use the augmented Solow (1956) model and the ARDL bounds procedure (Pesaran et al., 2001) to examine the short-run and long-run effects of energy and capital on output (in per worker terms). We also conduct causality test using the Toda and Yamamoto (1995) non-causality procedure. Our results show the existence of long-run cointegration between output per worker and energy per worker for all the four countries. We find that energy per worker have a dynamic short-run positive effect in Albania (0.37%), Bulgaria (0.25%), Hungary (0.36%) and Romania (0.68%), and a long-run positive effect in Bulgaria (0.32%) and Romania (0.63%) which duly indicate that energy consumption has a momentous long-run effect in these two countries. The causality results indicate a unidirectional causation from output per worker to energy per worker for all the four countries, and from capital per worker to energy per worker for Albania and Romania. Consequently, a balance between effective energy consumption and sound energy conservation policies are likely to support economic growth in the four countries.