The energy-economic growth nexus : empirical evidence for New Zealand : a thesis presented in partial fulfilment of the requirements for the degree of Master of Applied Economics at Massey University, Palmerston North, New Zealand

Abstract

This study addresses the energy consumption and energy price-economic growth nexus for the case of New Zealand. Several hypotheses concerning the impacts of energy consumption and oil price shocks on economic growth are empirically examined, as these issues have important policy implications that have received little attention in New Zealand. Utilising the Autoregressive Distributed Lag approach to cointegration, the energy consumption-economic growth relationship is analysed over the period 1960-2004. Two key approaches are followed in terms of a cointegration and causality framework to answer whether energy consumption is a stimulus for economic growth or if economic growth leads to energy consumption. The energy consumption-growth nexus are examined based on the theoretical arguments of the trivariate demand model, trivariate supply model and multivariate supply model. The results indicate that long run relationships exist between various sets of variables, i.e. energy consumption, energy prices, labour and capital. Given the central role of energy to New Zealand's domestic growth agenda as well as international climate change commitments, the estimated results provide a basis for policy prescriptions to deal with these issues for the short run and long run. The related issue of oil price shock impacts on economic growth is considered for the period 1989-2006 using the Vector Autoregressive methodology based on quarterly data. Three oil price measures are considered, given the various theoretical implications that oil price shocks have on economic growth. The estimated results are based on the concept of 'net oil price shocks', and indicate that such shocks impact significantly on several key macroeconomic variables in a manner that is consistent with the economic theory. The findings of this study provide policy implications based on the key elements of New Zealand's energy-growth relationships and energy policies, in light of energy scarcity, climate change issues, and the related policy responses