Causality Relationship between Energy Consumption and Economic Growth in Brazil

Abstract

This study has investigated the relationship between energy consumption and economic growth in Brazil during the period of 1980-2008. The co-integration test indicates a long-run equilibrium relationship between variables, and energy consumption appears to be real GDP elastic. This elasticity suggests that energy consumption has a great positive influence on changes in income. The causality results from the error correction model reveal a unidirectional short-run causality from energy consumption to economic growth and a bidirectional strong causality between them. These findings suggest that Brazil should adopt a dual strategy of increasing investment in energy infrastructure, and stepping up energy conservation policies to reduce any unnecessary waste of energy, in order to avoid having a negative effect on economic growth by reducing energy consumption. In contrast, energy conservation is expected to increase the efficient use of energy and, therefore, enhance economic growth.