Energy consumption and sustainable economic welfare: New evidence of organization of petroleum exporting countries

Abstract

This paper examines the relationship between energy consumption and sustainable economic welfare in Organization of Petroleum Exporting Countries. Initially, the index of sustainable economic welfare (ISEW) is calculated followed by an investigation of the relationship between energy consumption and sustainable economic welfare in these countries. The calculation of the ISEW reveals the most important beneficial component and the most important cost component of ISEW is adjusted personal consumption and energy depletion, respectively. The estimated results based on the Westerlund (2007) test and considering cross-sectional dependence indicate that there is a long run relationship between energy consumption and sustainable economic welfare. Granger’s causality test results indicated a unidirectional causality running from sustainable economic welfare to energy consumption. This result has implications for energy and environmental policy makers; energy conservation policy will be useful in improving the quality of environment and it does not have adverse impact on their sustainable economic welfare.