Economic sustainability of energy conservation policy: improved panel data evidence

This paper examines the nature of the economic activity–energy use nexus for 82 countries and the period from 1971 to 2014. Compared to all other papers, the current study is based on a significantly larger number of observations and was carried out by using new and advanced non-stationary panel data econometric techniques that overcame most of the existing methodical failures. The findings of the Granger non-causality test quite robustly lead to the conclusion that there is bi-directional causality both in the short and the long run. Finally, the obtained estimation results suggest that the increase of energy consumption by 1% results in an increase of GDP per capita between 0.54 and 0.56%. Also, the increase of GDP by 1% results in an increase in energy consumption between 0.47 and 0.48%. Governments cannot simply apply energy conservation policy by reducing total consumption of fossil fuels without negatively affecting economic activity and generating of spiral of mutual effects with positive ecological and very negative economic consequences. It is therefore necessary to make significant efforts to modernize the energy sector and to stimulate companies to invest in new energy-efficient production technologies relying on alternative environmentally friendly energy sources.