Empirical Study Of The Relationship Between Energy Consumption And Gross Domestic Product In The U.S.A.

Abstract

The role of energy in the economy is an important issue. There is a general belief and agreement amongst economists, researchers, analysts, and policymakers, that energy consumption is related to economic activity and plays a key role in the process of economic development. However, the precise nature of this relationship between energy consumption and economic growth remains debatable. While some ambiguity has remained regarding the direction of causation--- whether from energy to economy or from economy to energy --- the importance of the energy GDP interaction is well recognized. Energy use is a necessary input to economic growth and is also a function of growth. This paper begins with a literature review of the work that has been done to date on the energy-GDP relationship in several countries. Then, an analysis of the historical data for the U.S.A. from 1949 2003 is presented along with mathematical models. The contributions from this paper are that first, we clarify that energy conservation policies will not harm the U.S. economy. Second, we employed a macroeconomic model based on Multiple Model Estimation to determine the relationship between energy consumption and GDP in the United States for the stated time period. Our model suggests that the causation goes both ways: from energy to the components of GDP, and from GDP to energy consumption.