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The Energy, Economic Growth, Urbanization Nexus Across Development: Evidence from Heterogeneous Panel Estimates Robust to Cross-Sectional Dependence

Abstract:
This paper combines two aggregate production function models--one with urbanization as a shift factor and one that includes energy/electricity consumption and physical capital--to estimate the macro-level relationship among urbanization, energy/electricity consumption, and economic growth using a panel method that is robust to both cointegration and cross-sectional dependence. For four panels (comprising in turn high, upper middle, lower middle, and low income countries) GDP per capita, total final energy and electricity consumption per capita, gross fixed capital formation per capita, and urbanization were found to be I(1), cross-sectionally dependent, and cointegrated. The long-run elasticity estimates suggest (i) that urbanization is important to and associated with economic growth, (ii) that urbanization's impact on economic growth ranges from substantially negative to nearly neutral to positive as countries develop--an "urbanization ladder" effect, and (iii) that less developed countries are over-urbanized (their elasticities being negative).

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Other ; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q54 - Climate; Natural Disasters and Their Management; Global Warming
Q59 - Environmental Economics: Other
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Energy/electricity consumption and economic growth, Panel cointegration, Cross-section dependence, Urbanization and economic growth, Environment and development

DOI: 10.5547/01956574.34.2.8

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Published in Volume 34, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.