Ghent University, Department of Agricultural Economics
Abstract
The paper investigates the existence of dynamic causality between the energy consumption, environmental pollutions and economic growth using cointegration analysis for Bangladesh. First, we tested whether any long run relationship exist using Johansen bi-variate cointegration model which is complemented with auto-regressive distributed lag model introduced by Pesaron for the results robustness. Then, we tested for the short run and the long causality relationship by estimating bi-variate vector error correction modeling framework. The estimation results indicate that a unidirectional causality run from energy consumption to economic growth both in the short and the long run; a bi-directional causality from electricity consumption to economic growth in long run but no causal relationship exists in the short run. A uni-directional causality run from CO2 emissions to energy consumption in the long run but it is opposite in the short run. CO2 granger cause to economic growth both in the short and in the long run, which is conflicting to the familiar environmental Kuznets curve hypothesis. Our results are different from existing analysis for electricity consumption and economic growth, however. The result of dynamic linkage between energy consumption and economic growth significantly reject the ‘neo-classical’ assumption that energy use is neutral to economic growth. Hence clearly an important policy implication, energy can be considered as a limiting factor to the economic growth in Bangladesh and conservation of energy may harm economic spurs. Therefore, it is a challenge for the policy makers to formulate sustainable energy consumption policy to support smooth energy supply for sustainable economic growth
