The energy-GDP nexus: Evidence from a panel of Pacific Island countries

摘要

The Pacific Island countries are small island economies that areincreasingly dependent on energy for growth and development, yethighly susceptible to climate change. Thus, the relationship betweenenergy consumption and GDP is crucial for realizing their futuredevelopment and growth objectives. This article tests for Grangercausality and provides long-run structural estimates for the relation-ship between energy consumption, GDP and urbanization for a panelof Pacific Island countries. For the panel as a whole in the long-runthere is bidirectional Granger causality between energy consumptionand GDP and these variables exert a positive impact on each other. A1% increase in energy consumption increases GDP by 0.11%, while a1% increase in GDP increases energy consumption by 0.23%. Thefindings suggest that for the panel as a whole these countries shouldincrease investment in energy infrastructure and regulatory reformof energy infrastructure to improve delivery efficiency, continue topromote alternative energy sources and put in place energyconservation policies to reduce unnecessary wastage. These strate-gies seek to realize the dual objectives of reducing the adverse effectsof energy use on the environment, while avoiding the negative effecton economic growth of reducing energy consumption.