Dynamics of Energy Consumption and Economic Growth: A Panel Estimation of Net Oil Importing Countries

This study revisits the relationship between energy consumption and economic growth in twelve net oil importing countries that are divided between two panels, namely, low net oil importing countries and high net oil importing countries for the data from 1971 to 2014. The study estimates a panel vector error correction model (VECM) and panel variance decomposition analysis and it is found that: Firstly, the carbon emission is an important factor in the interlinkage between the growth and energy. The economic growth evidently appears to drive energy consumption. Further, the carbon emission increases with an increase in economic growth and energy consumption and this inference could be drawn in the case of both groups of countries. But its magnitude is more pronounced in low oil importing countries. Secondly, a uni-directional causal relationship running from economic growth to energy consumption is detected and hence supports conservation hypothesis regardless of the level of oil import dependency of the countries. It implies that energy conservation policies do not negatively impact the economic growth of the oil importing economies. Therefore, countries, irrespective of the level of net oil import, are suggested to pursue a low carbon economy through sustainability practices, preferably in high carbon density sectors such as constructions and infrastructure, industries and power. This paper contributes to the literature by initiating the discussion on the energy-economy nexus in net oil importing economies by incorporating environmental factor.