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Energy Consumption and Real Income: A Panel Cointegration Multi-country Study

The direction of the causality between energy consumption and income is an important issue in the fields of energy economics, economic growth, and policies toward energy use. The seminal work on the relations between energy consumption and aggregate income is Kraft and Kraft (1978). An extensive literature has followed, but the array of findings provide anything but consensus on either the existence of relations or direction of causality between the variables. The work in this paper extends this research by analysing the cointegrating and causal relations between income and three energy consumption series based on panel data and the latest panel methodologies. These relations are analysed for the 30 OECD countries and 26 non-OECD countries. The results support a finding of causality flowing from income to energy consumption for developed and developing economies, alike.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Income and energy consumption, panel cointegration, causality

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-5

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Published in Volume 32, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.