The Extended Energy–Growth Nexus: Theory and Empirical Applications
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About this ebook
The Extended Energy-Growth Nexus: Theory and Empirical Applications advances the established bivariate econometric relationship which inextricably links energy consumption to economic growth. The book extends this "nexus" to accommodate variables such as globalization, institutional variables, financial variables and the energy "mix." Rooted firmly in the modern literature, it covers empirical applications such as the evaluation of renewable energy incentives, the electricity generation mix, and sustainable development. Each application area incorporates modern econometric methodologies, including VAR, panel VAR, ARDL, panel ARDL, Asymmetric panel ARDL, and Panel Quantile Regression. Throughout chapters are accompanied by illustrative Stata and EViews code, demonstrating their uses in applied research.
- Primes researchers to understand advanced literature and current methodologies within the energy-growth nexus
- Provides a rich set of working tools for econometricians working on real-world energy and growth problems
- Accompanied by representative databases and illustrative Stata and EViews code, facilitating replication and use
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The Extended Energy–Growth Nexus - Jose Alberto Fuinhas
1995;66(1–2):225–250.
Chapter One
Energy–growth nexus and economic development: a quantile regression for panel data
Tiago Lopes Afonso¹*, António Cardoso Marques¹* and José Alberto Fuinhas²*, ¹NECE-UBI and, Management and Economics Department, University of Beira Interior, Covilhã, Portugal, ²NECE-UBI, CeBER and Faculty of Economics, University of Coimbra, Coimbra, Portugal
Abstract
In a context of energy transition, the objectives of both economic growth and sustainability are increasingly influenced by political agendas worldwide. Assuming that growth and sustainability may be divergent, the question of how they are measured arises. Therefore this chapter considers two different approaches: the economic growth approach, using the standard real gross domestic product per capita; and the sustainable development approach, using the index of economic and sustainable welfare. With a time span from 1995 to 2014, for 55 countries around the world, a quantile regression model for panel data was used to analyze energy use, economic growth, and sustainability. The novel aspect of this chapter is not only to analyze and compare economic growth and approaches to sustainable development, but also to carry out the analysis by level of income and development. This option sheds light on some of the inconsistencies documented in the literature. The quantile estimation regression was estimated step by step. The results proved that the effect of energy use is quite different to sustainability and economic growth approaches. Energy use plays a different role in each level of income; positive, neutral, and negative for lower, middle, and upper income level, respectively. While the consequence is negative for lower and middle on sustainability level, it is positive for high sustainable countries. Overall, this chapter provides evidence for the need to devise different policies depending on whether they are focused on economic growth or sustainable development.
Keywords
QRPD; ISEW; sustainability; economic growth; energy use
Contents
1.1 Motivation 1
1.2 Economic growth and sustainable development: the debate 4
1.3 Data and method 6
1.3.1 The index of sustainable economic welfare calculation 6
1.3.2 Variables 9
1.3.3 Method 11
1.4 Results 14
1.5 Discussion 18
1.6 Conclusions 20
References 22
1.1 Motivation
Energy is more than a simple input in the production process, more important than a mere utility. It constitutes a critical piece in the organizational process and in the life of society as a whole. Accordingly, when analyzing the use of energy, two main approaches could be pursued: namely, focusing on the production process and, as such, on economic growth or, instead, focusing on society as a whole, from a development perspective. The former approach has thus far been largely dominant in the literature.
Indeed, economic growth, represented by the growth rate of gross domestic product (GDP), has been a core goal for policymakers. In general, GDP has been considered as a main indicator of both wealth and sustainable development. More recently, countries have started to consider larger environmental concerns when defining economic policies to promote growth, and to bear in mind the target of sustainable development. Evidence of this can be seen in the widespread participation in agreements aimed at controlling greenhouse gases emissions, such as the commitment of the COP21 assembly of the United Nations Frameworks Convention on Climate Change (UNFCCC). As a result of this concern to reduce the human ecological footprint, some authors have studied the issues around this topic. These have been mainly associated with: renewable energy policies (Marques & Fuinhas, 2012); energy efficiency (Moutinho, Madaleno, & Robaina, 2017); and the energy–growth nexus (Cai, Sam, & Chang, 2018).
However, in general, the literature about the energy–growth nexus has failed to consider the externalities of energy production. Furthermore, GDP has some limitations as a measure of well-being and environmental status, given that it does not take into account environmental damage or social costs. This chapter seeks to fill this gap in the literature. The need to distinguish economic growth and sustainable development has led to the search for an alternative measure. The Index of Sustainable Economic Welfare (ISEW) has emerged in the literature (Beça & Santos, 2010; Böhringer & Jochem, 2007; Brennan, 2008; O’Mahony, Escardó-Serra, & Dufour, 2018) as a standard indicator of sustainable development. Although it has suffered several changes since it was proposed, the goal of the ISEW remains the same: to provide a measure for social welfare without compromising future generations. Although the information included in the ISEW is complex, there are currently few alternatives, such as Ecological Footprint, City Development index, Human Development index, Environmental Sustainability index, Environmental Performance index, Environmental Vulnerability index, Well-Being Assessment, Genuine Savings, or Green National Product (Böhringer & Jochem, 2007).
Within a context of energy transitioning toward a more diversified electricity mix, the study and comparison of the (traditional) energy–growth nexus, with a new focus on sustainability, deserves even more attention. Consequently, this study considers two approaches: (1) the Economic Growth Approach (EGA) and (2) the Sustainable Development Approach