Energy consumption and growth: a review of international empirical literature

The relationship between energy consumption and economic growth has been extensively examined, using different methodologies, in a wide range of countries across the world. This paper focuses on a review of existing literature on the causal relationship between energy consumption and economic growth. There are currently four views regarding the direction of causality between energy consumption and economic growth in the literature. The first view centres on the notion that energy consumption Granger-causes economic growth. This view is noted as the "energy-led growth hypothesis". The second view, known as the "growth-led energy consumption hypothesis", supports the view that economic growth Granger-causes energy consumption. The third view argues for a bidirectional causal relationship between energy consumption and economic growth, whilst the fourth view argues for no causal relationship between the two variables. Although other literature surveys have focused mainly on studies that use total energy consumption as a proxy for energy consumption, few have consolidated the literature based on different energy sources and how this impacts on the direction of causality. The aim of this paper is therefore to review literature on the causal relationship between energy consumption and economic growth by energy source. The findings from the literature reviewed in this study reveal that although there is no consensus yet on the direction of causality between energy consumption and economic growth, the conventional wisdom is in favour of the feedback hypothesis, where energy consumption and economic growth Granger-cause one another. In terms of energy sources, the study reveals that electricity energy consumption predominates the growth-led energy hypothesis, whilst renewable energy consumption predominates the feedback hypothesis.