Energy consumption, trade and GDP: A case study of South Asian countries

Abstract

After two oil crises in 1970s and severe shortages of gas and electricity supplies in many developing countries, energy consumption is now considered a binding constraint for GDP and exports of a country separately. This study has however investigated dynamic linkages between energy consumption, exports and GDP to capture indirect impact of energy consumption on GDP through export multiplier as well. For this purpose, panel data of five South Asian countries for the period of 1980-2009 has been obtained and co-integration technique and panel Granger causality test have been applied. The findings are that in the short run, two-way causality holds between energy consumption and GDP, between exports and GDP and between energy consumption and exports. In the long run, however, two-way causality holds only between energy consumption and GDP and one-way casualty running from exports to GDP and to energy consumption holds. It means that any shortage in energy supply adversely affects GDP and exports and reduction in exports, in turn, impairs competitiveness of the country in foreign markets and it requires a long time for a country to regain that level of competitiveness.