Energy-Growth Nexus in an Era of Globalization
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About this ebook
Energy Growth Nexus in an era of Globalization reviews current research and practical policy considerations reflective of the ongoing transformation, covering four broad globalization themes from existing research literature: energy consumption, renewable energy consumption, financial markets and energy markets. Within these themes, contributors evaluate transformations in the energy-growth association relating to economic slowdowns, trade patterns, impacts of globalization, cross-border technological spillovers, changes in the risk profile of the countries, advent of Sustainable Development Goals (SDGs), changes in the pattern of cross-border labor force migration, and rising environmental awareness, among many other considerations.
Policymakers, energy economists, and energy researchers in a range of connected disciplines will find this to be a great resource on the energy growth sector.
- Addresses globalization relating to energy consumption, environmental quality, econometrics and energy markets
- Demonstrates how to design effective energy and environmental policies in a rapidly globalizing world within a Sustainable Development Goals (SDGs) framework
- Reviews open research questions relevant to energy-growth nexus so policymakers can bring forth socioeconomic stability
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Energy-Growth Nexus in an Era of Globalization - Muhammad Shahbaz
Energy-Growth Nexus in an Era of Globalization
Editors
Muhammad Shahbaz
Energy Economics, School of Management and Economics, Beijing Institute of Technology, Beijing, China
Aviral Kumar Tiwari
Rajagiri Business School (RBS), Kochi, Kerala, India
Avik Sinha
Centre for Excellence in Sustainable Development, Goa Institute of Management, Goa, India
Table of Contents
Cover image
Title page
Copyright
List of contributors
Chapter 1. Exploring the linkages between technological advancements and environmental degradation on the energy-growth nexus
1. Introduction
2. Our study
3. Findings
4. Conclusion and future scope
Chapter 2. A long-run nexus of renewable energy consumption and economic growth in Nepal
1. Introduction
2. Literature review
3. Methodology
4. Chapter IV: Results
5. Chapter V: Discussions, implications, and conclusion
Chapter 3. The energy consumption-growth nexus in Jamaica: does globalization matter?
1. Introduction
2. Macroeconomic profile, literature, and contribution
3. Data and methods
4. Results
5. Discussion and concluding remarks
Chapter 4. Return and volatility spillovers between fossil oil and seafood commodity markets
1. Introduction
2. Econometric methodology
3. Data and stochastic properties
4. Results and discussion
5. Conclusion
Chapter 5. Econometric analysis of the economic growth-energy consumption nexus in emerging economies: the role of globalization
1. Introduction
2. Literature review
3. Methodology and data
4. Empirical results and discussions
5. Conclusions and policy implications
Chapter 6. Commodities spillover effect in the United States: insight from the housing, energy, and agricultural commodity markets
1. Introduction
2. Related literature: information transmission
3. Data and empirical estimation
4. Empirical results and discussion
5. Conclusions and policy direction
Chapter 7. The effect of globalization on energy consumption: evidence from selected OECD countries
1. Introduction
2. Literature review
3. Econometric methodology
4. Data and results
5. Conclusion and policy recommendations
Appendix: list of 29 OECD countries forming the panel
Chapter 8. The electricity retail sales and economic policy uncertainty: the evidence from the electricity end-use, industrial sector, and transportation sector
1. Introduction
2. Literature review
3. Data and methodology: structural vector autoregressive model
4. Estimation output
5. Conclusion
Chapter 9. Economics of offshore renewable energy
1. Introduction
2. Types of offshore energy technology
3. Case of study
4. Results
5. Conclusions
Chapter 10. Investigating the determinants of energy efficiency in emerging economies: the comparative roles of trade and financial globalization
1. Introduction
2. Literature review
3. Materials and methodology
4. Empirical findings
5. Concluding remarks
Chapter 11. Is globalization a driver for energy efficiency and sustainable development?
1. Introduction
2. Debate
3. Empirical procedure
4. Results
5. Discussion
6. Conclusion
Appendix
Chapter 12. Renewable energy consumption, human capital index, and economic complexity in 16 Latin American countries: evidence using threshold regressions
1. Introduction
2. Literature review
3. Statistical sources
4. Econometric strategy
5. Results and discussion
6. Conclusions and policy implications
Chapter 13. Quest for energy efficiency: the role of human capital and firm internationalization
1. Introduction
2. Literature review
3. Methodology
4. Findings and discussion
5. Conclusion and implications
Chapter 14. Green growth and energy transition: An assessment of selected emerging economies
1. Introduction
2. The meaning and measures of green growth and energy consideration thereof
3. Global green growth and energy transition at the world level
4. The patterns of green growth and related energy development in emerging economies
5. Challenges and way forward to ensure green growth supported by energy transition
6. Conclusion
Chapter 15. Making green finance work for the sustainable energy transition in emerging economies
1. Introduction
2. The energy-environment-economy nexus and the role of green finance in emerging economies
3. Energy transition in the world and the emerging economies
4. Green financing for energy transition: current applications across countries
5. Financing sustainable energy transition in emerging economies
6. The state of energy transition in selected emerging economies
7. The use of green finance for energy transition in the selected emerging economies
8. Financing transition toward renewables: what more can be done?
9. The need for a coordinated policy consideration
10. Challenges in energy transition in emerging economies
11. Conclusion
Chapter 16. A revisit of the globalization and carbon dioxide emission nexus: evidence from top globalized economies
1. Introduction
2. Literature review
3. Methodology
4. Data analysis and findings
5. Conclusion and policy recommendation
Chapter 17. Is there an asymmetric causality between renewable energy and energy consumption in BIC countries?
1. Introduction
2. Literature review
3. Data and methodology
4. Empirical findings
5. Results and policy implications
Chapter 18. Energy consumption, financial development, globalization, and economic growth in Poland: new evidence from an asymmetric analysis
1. Introduction
2. Literature review
3. The model and data
4. Methodological framework
5. Empirical results
6. Conclusion
Index
Copyright
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ISBN: 978-0-12-824440-1
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List of contributors
Alex O. Acheampong
Newcastle Business School, University of Newcastle, NSW, Australia
Centre for African Research, Engagement and Partnerships (CARE-P), University of Newcastle, NSW, Australia
Andrew Adewale Alola
Department of Economics and Finance, Istanbul Gelisim University, Istanbul, Turkey
Department of Economics, School of Accounting and Finance, University of Vaasa, Finland
Uju Violet Alola, Department of Tourism Guidance, Istanbul Gelisim University, Istanbul, Turkey
Erkan Alsu, Department of Business Administration, Gaziantep University, Gaziantep, Turkey
Rafael Alvarado, Carrera de Economía and Centro de Investigaciones Sociales y Económicas, Universidad Nacional de Loja, Loja, Ecuador
Mary Amponsah
Newcastle Business School, University of Newcastle, NSW, Australia
Centre for African Research, Engagement and Partnerships (CARE-P), University of Newcastle, NSW, Australia
Shakila Aziz, School of Business & Economics, United International University, Dhaka, Bangladesh
Eugenio Baita-Saavedra, Saitec, Leioa, Bilbao, Spain
Suborna Barua, Department of International Business, University of Dhaka, Dhaka, Bangladesh
Faik Bilgili, Erciyes University, Faculty of Economics and Administrative Sciences, Kayseri, Turkey
Elliot Boateng
Newcastle Business School, University of Newcastle, NSW, Australia
Centre for African Research, Engagement and Partnerships (CARE-P), University of Newcastle, NSW, Australia
Kaycea Campbell, Department of Economics, Los Angeles Pierce College, Woodland Hills, CA, United States
Laura Castro-Santos, Universidade da Coruña, Departamento de Enxeñaría Naval e Oceánica, Escola Politécnica Superior, Ferrol, Spain
David Cordal-Iglesias, Universidade da Coruña, Escola Politécnica Superior, Ferrol, Spain
Anupam Das, Department of Economics, Justice, and Policy Studies, Mount Royal University, Calgary, AB, Canada
Mehmet Akif Destek, Department of Economics, Gaziantep University, Gaziantep, Turkey
Almudena Filgueira-Vizoso, Departamento de Química, Escola Politécnica Superior, Universidade da Coruña, Ferrol, Spain
Pelin Gençoğlu, Erciyes University, Research and Application Center of Kayseri, Kayseri, Turkey
Akram Shavkatovich Hasanov, Department of Econometrics and Business Statistics, Monash University, Subang Jaya, Selangor, Malaysia
Aarushi Jain, Indian Institute of Management, Indore, Madhya Pradesh, India
Abhinav Jindal
NTPC Ltd., NTPC Bhawan, New Delhi, Delhi, India
Indian Institute of Management, Indore, Madhya Pradesh, India
Cengizhan Karaca, Department of Office Management and Executive Assistance, Gaziantep University, Gaziantep, Turkey
Abiral Khatri, Erasmus University, Rotterdam, Netherlands
Sevda Kuşkaya, Erciyes University, Justice Vocational College, Department of Law, Kayseri, Turkey
Patrícia Hipólito Leal
University of Beira Interior, Management and Economics Department, Covilhã, Portugal
NECE-UBI, University of Beira Interior, Covilhã, Portugal
António Cardoso Marques
University of Beira Interior, Management and Economics Department, Covilhã, Portugal
NECE-UBI, University of Beira Interior, Covilhã, Portugal
Adian McFarlane, School of Management Economics and Mathematics, King's University College at Western University Canada, London, ON, Canada
Walid Mensi
Department of Finance and Accounting, University of Tunis El Manar, Tunis, Tunisia
Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman
Muhammad Shujaat Mubarik, College of Business Management (CBM), Institute of Business Management (IoBM), Karachi, Pakistan
Yusuf Muratoglu, Department of Economics, FEAS, Hitit University, Corum, Turkey
Navaz Naghavi, School of Accounting & Finance, Faculty of Business & Law, Taylor's University, Lakeside Campus, Subang Jaya, Malaysia
Cristian Ortiz, Esai Business School, Universidad Espíritu Santo, Samborondon, Ecuador
Yessengali Oskenbayev
Business School, Suleyman Demirel University, Kaskelen City, Kazakhstan
Department of Finance and Accounting, University of International Business, Almaty, Kazakhstan
Burcu Ozcan, Faculty of Economics and Administrative Sciences, Department of Economics, Firat University, Elazig, Turkey
Nirash Paija, Tribhuwan University, Kirtipur, Kathmandu, Nepal
Agnieszka Parlinska, Institute of Economics and Finance, Warsaw University of Life Sciences WULS – SGGW, Warsaw, Poland
Pablo Ponce, Carrera de Economía and Centro de Investigaciones Sociales y Económicas, Universidad Nacional de Loja, Loja, Ecuador
Devran Sanli, Department of Economics, FEAS, Bartın University, Bartın, Turkey
Nida Shah, Business Administration, IQRA University, Karachi, Pakistan
Muhammad Shahbaz, School of Management and Economics, Beijing Institute of Technology, Beijing, China
Arshian Sharif, Othman Yeop Abdullah Graduate School of Business, University Utara Malaysia, Malaysia
Mehmet Songur, Department of Economics, FEAS, Dicle University, Diyarbakır, Turkey
Mehmet Temiz, Faculty of Economics and Administrative Sciences, Department of Economics, Firat University, Elazig, Turkey
Fatma Ünlü, Erciyes University, Faculty of Economics and Administrative Sciences, Kayseri, Turkey
Yılmaz Toktaş, Department of Economics, Merzifon Faculty of Economics and Administrative Sciences, Amasya University, Amasya, Turkey
Elisa Toledo, Departamento de Economía, Universidad Técnica Particular de Loja, Loja, Ecuador
Ali Gokhan Yucel, Faculty of Economics and Administrative Sciences, Department of Economics, Erciyes University, Kayseri, Turkey
Ali Syed Raza, Business Administration, IQRA University, Karachi, Pakistan
Chapter 1: Exploring the linkages between technological advancements and environmental degradation on the energy-growth nexus
Aarushi Jain ¹ , and Abhinav Jindal ² , ³ ¹ Indian Institute of Management, Indore, Madhya Pradesh, India ² NTPC Ltd., NTPC Bhawan, New Delhi, Delhi, India ³ Indian Institute of Management, Indore, Madhya Pradesh, India
Abstract
As countries grow and prosper for meeting ever-growing energy needs, stringent regulations on energy usage are probably the need of the hour. This may also prove sanguine for potential innovation in the future. Many businesses apprehend that environmental regulation may have a rather negative effect on business performance. However, evidence from Porter hypothesis suggests that stringent environmental norms, in general, lead to greater efficiency and innovation thereby improving commercial competitiveness. The existence of Porter's hypothesis has been validated in several developing countries like China, Korea, Malaysia, etc., which initially had lower levels of technology, but with time and increasing regulation, these became technologically advanced and more capable of handling the energy-related futuristic challenges. Therefore, we believe that businesses and enterprises need not fear but rather embrace stringent regulations and take necessary measures to foster technological innovations through generous research and development efforts. While energy consumption aids growth of the economy, it is also the predominant cause for potential degradation of the environment. The environmental Kuznets curve (EKC) shows the actuality of a nonlinear and inverted U-shaped relationship between the growth of the economy and emissions. However, there are ideological differences about the universal applicability of the EKC hypothesis to all environmental problems.
Innovations are expected to reduce carbon footprint by fostering the usage of renewable sources of energy for mitigating CO2 emissions. Further, in an era of globalization, technological spill-overs and foreign investment can potentially cause a positive influence on energy consumption, green energy, and promoting growth. The chapter discusses the significance of technological innovations in the energy-growth nexus and highlights the role of recent innovations like electric vehicles, energy storage, etc., on energy consumption as well as growth.
Keywords
Energy-growth nexus; Environmental degradation; Renewable energy; Technological innovations
1. Introduction
1.1. A brief overview
Greta Thunberg, a popular Swedish environmentalist stated in her speech,
We deserve a safe future. And we demand a safe future. Is that really too much to ask?
The rapid increase in technological advancements and economic development has resulted in the rise of the consumption of energy in the developing as well as in the developed countries due to globalization. Popular definitions of globalization include, a state of the world involving networks of independence at multi continental distances.
Globalization is a multidimensional process with one dimension being that of environment. Environmental globalization is becoming palatable due to the connectedness in the regular environmental management practices and increasing spatial uniformity (Grainger, 2005). Therefore, different nongovernment organizations, governments, and intergovernment organizations are increasingly getting concerned with the environmental aspects of globalization like and aims to control or regulating. Due to the rapid production and financial advancements, the problems related to energy have been persistent and increasing due to several reasons.
One of the major concerns for the rise in energy consumption is due to the population growth, there is huge demand for energy consumption due to which the energy consumption and environmental degradation are increasing when the globalization and energy-growth nexus increases. If the energy-growth nexus has a negative impact such as decrease in usage of fossil fuels and carbon emissions, then it will lead to the reduction of environmental degradation and energy consumption which in turn will lead to preservation of the energy (Chen et al., 2019).
Although the consumption of energy leads to the growth in economy, it is now becoming a major cause for the degradation of the environment (Saidi et al., 2016). Environmental degradation such as pollution has become one of the major issues in the last few years due to the increase in the greenhouse gas (GHG) emissions (Dogan et al., 2016). The recent case of Australian bushfire and Amazon forest fire has already killed many animals and two dozen people. The forests are abnormally dry and need a significant amount of rainfall in order to thrive. The prediction by IPCC (2007) explains that there will be 40%–110% increase in the energy related CO2 emissions by 2030. Therefore, to curb these, it is essential to explore the consumption of energy-related factors which effect the emission of CO2 and to reduce the carbon emissions to achieve a carbon free economy.
The high CO2 emission which is the dominant contributor of the GHGs is aggravating the problem of environmental degradation (Zhang and Cheng, 2009). In recent years, among both the social and physical scientists, environmental degradation is the most discussed topic. Economists with other professionals have developed a research group who work extensively on the energy and growth nexus and its repercussions on the environment (Ahmed et al., 2015). Among the various options which are open to the society for the reduction in environmental degradation, technology is best suited. Technology has been able to identify patterns (Chen et al., 2021). For instance, the use of electronic components in consumer products and equipment, the trend to use lighter materials, reductions in material equipment, etc. The developing economies like China, India, using technological manifestations have improved the global competitiveness and efficiency in the energy sector. The countries such as Malaysia, Korea, China, India, which initially had lower technological efficiency have now become technologically efficient and advanced and more capable of handling the futuristic challenges, hence validating the Porter's hypothesis (1991). Porter stated that no severe environmental regulation may have a positive effect on firm's performance by stimulating innovations. Properly designed environmental regulations can trigger innovation partially or fully offset the costs of complying with them.
(Zahra and Covin, 1994) suggested innovation as Innovation is widely considered as the life blood of corporate survival and growth.
The significance of innovation is not only restricted to business organizations, it also has wider implications in the face of globalization and environmental challenges.
1.2. Technological innovation
Technology means the ability of humans to create things with the help of machines or hands. It has been derived from two Greek words (Techne and logos) which mean the ability of humans to create things using hands or machines (Energypedia, 2018). Technology is a means to develop the new products, services, and process. Innovation in technology is a very crucial aspect in today's modern times. The products and services are getting smart and smarter day by day which no one has thought of. Technology and humans are inseparable from each other. There is a cyclical dependence on technology in society. Technology is capable of enhancing our physical and intellectual capabilities, emotions, and also guides our decision making.
However, Schumpeter (1939) pointed out that technological innovation is a cyclical process which follows a defined path. The S-curve theory of innovation posits the limits to technology in enhancing performance beyond a limit. The impact of innovations is rather limited and may not be sufficient alone to mitigate all energy-related challenges in the near future. It would also require efforts on energy conservation, behavioral measures, etc. Innovations are expected to reduce carbon footprint by fostering the use of renewable energy for mitigating CO2 emissions. Further, in an era of globalization, technological spill-over and foreign investment can potentially cause a positive influence on energy consumption, green energy, and promoting growth. This is evidenced by the rapid growth of solar power in India as technology is borrowed from other countries namely China and the United States and increasing investment by foreign companies in India in this sector. There is a general opinion that an increase in the use of renewable energy decreases the CO2 emissions in a country. However, the impact of deployment of renewable energy on economic growth remains unexplored and needs further investigation.
There are various literatures which examines the nexus between environmental degradation and economic growth using the environmental Kuznets curve (EKC) hypothesis empirically proving causal relationships between the variables environmental pollution and economic growth, income and energy usage, gross domestic product (GDP) and energy usage (Zhang et al., 2009; Soytas and Sari, 2006; Yuan et al., 2008). According to EKC, environmental pollution increased with economic growth up to a certain income level and then decreased, it is stated that industry-induced environmental pollution was not encountered in preindustrial societies, who earn their living via agricultural activities.
However, due to rapid urbanization and industrialization, consumption of natural resources and use of technologies resulting in the destruction of the environment is causing environmental pollution. Societies have become cognizant and now demand clean environmental qualities. Therefore, the use of cleaner technologies has started on the purpose to reduce environmental degradation so as to reduce the GHG's emissions. Accordingly, in the advanced industrialization phases, there is an increasing demand for cleaner technologies (Destek and Ozsoy, 2015).
The chapter discusses the significance of technological innovations in the energy-growth nexus and highlights the role of recent innovations like electric vehicles, energy storage, etc., on energy consumption as well as growth. Subsequently, we point out how environmental degradation is related to growth and analyze a few recent incidents of environmental degradation like Australian wildfires, Amazon fire, cyclones, and typhoons in India, etc. Finally, the chapter concludes with policy suggestions. In the next section, we will discuss about how technological innovations have helped in increasing the energy efficiency in different geographic regions of the world and helped in contributing to the energy sector.
1.2.1. Technological innovations: Contributions to energy sector
In every part of energy framework, energy efficiency plays a crucial role as it ensures a country's sustainable growth and energy security (Liu et al., 2020; Destek and Sinha, 2020; Sinha et al., 2020a). The energy efficiency is crucial as it results in the reduction of energy intensity at both the industrial and household level (Saudi et al., 2019). Therefore, in this section, we will discuss about the contributions made by technological innovations in the energy sector.
There is various literature which deals differently with technology and energy efficiency in various ways. The literature deals with energy efficiency either through energy intensity or energy consumption examining with the impact of technology directly or indirectly. For example, Jin et al., (2018) the authors utilized three stage approach to analyze the nexus between the energy consumption and technological innovation. The authors found out that the energy consumption is not reduced due to the usage of technological innovations. They also further suggested that the policies should focus on technological innovations to reduce the energy consumptions.
There have been various studies which have been done in the country specific context as different countries have different energy usage. For example, the authors in Saudi et al. (2019) in the Indonesian context assessed the impact of technological innovations on energy intensity. The results highlighted that the technological innovations negatively impacts the energy intensity in Indonesia. The literature has used patent as a proxy of technological innovations (Owoeye et al., 2020; Sohag et al., 2015). The authors suggested that the technological innovations which are measured by trademark registered, and patents have nullified effect on the electricity consumption. Shahbaz et al. (2019) conducted a study on top 10 polluted Middle East and North Africa (MENA) countries from the period of 1990–2017 to analyze the impact on technological innovations and environmental degradation. The authors developed technological innovation index using various different measures. The results gave several insights such as the economic growth has a positive impact on technological innovations on the countries which enable technological advancements.
There have also been studies conducted on the MENA countries as these regions have vast oil, petroleum, and natural gas reserves. Sinha et al. (2020a) analyzed the impact of technological innovations on the energy efficiency from the period of 1990–2016 for the MENA countries and found that structural transformation and technological innovations have positive impact on the energy efficiency. The authors also found that the development of shadow economy negatively impacts the energy efficiency. The authors (Shahbaz et al., 2019b) have used economic indicators to measure technological progress as the research and development (R&D) expenditures cannot alone be used to measure the growth thereby making it unadaptable to measure technological innovation. The study found that higher economic complexity leads to the improvement in reduction of carbon emissions.
The other studies are conducted in Asian regions which discusses the technological advancements being utilized to reduce carbon emissions and increase energy efficiency. Sinha et al. (2020b) the authors also analyzed the impact of technological advancements, population, and gross national income, consumption in renewable energy for the Asia–Pacific countries. They found that technological innovations have positive impact on the air pollution index; on the other hand, renewable energy is negatively impacted by the same.
The authors Sinha et al. (2020c) have also conducted the study on N11 countries. The countries have huge growing populations and are large in size. The countries are basically categorized as emerging economies
of the world. The authors in this study analyzed the impact of technological innovations, renewable energy, gross national income, and population on air pollution in N11 countries found various insights. Technological innovation, renewable energy negatively impacts air pollution. Whereas environmental policies and technological innovations are impacting the air pollution level in these countries as the growth in national income and environmental deterioration are being caused by the technological innovations taken up by these nations. The authors suggested that in order to have sustainable development and higher growth trajectory, these countries need to be restructured for internalizing the negative externalities.
1.3. Scheme of study
The chapter has been conceptualized through the energy-growth nexus domain taking into account the aspects of technological innovations and environmental degradation. The chapter looks at the sources in the form of existing literature in the energy-growth nexus area. In this chapter, to find out the new perspectives and future directions from the energy-growth nexus, we have analyzed the energy-growth nexus, technological innovation, and environmental degradation areas, respectively, as mentioned in the figure above. The sources used to search through these areas are current literature, current technologies, and social media applications such as blogs, vlogs, social networking sites such as facebook, reddit, and many other sources. The objective is to find out new perspectives and directions from this chapter to which we have analyzed the aforementioned sources for this chapter (Fig. 1.1).
1.4. Related literature on energy-growth nexus
The technological advancements in the energy sector have recently gained a lot of interest within the economists. There have been many empirical studies which have focused on finding the causal relationship between economic growth, environmental pollution, renewable energy, CO2 emissions, and technological advancements variables. Causal relationships are often complicated and complex (Rogers, 2008). Causal relationships or the statements explain the events, allow actual predictions about the future and based on the predictions makes it possible to take actions in the future. Therefore, this literature review is divided into three parts which talks about the causality in the energy-growth nexus and how different authors have used casualty to explain in the energy sector.
The causal relationship between the growth of the economy and the consumption of energy was initially introduced in the article published by Kraft and Kraft (1978). Causality has also been explored in a detailed literature survey conducted in the paper by Ozturk in 2010. The authors conducted the study to examine the relationship between these variables in the context of USA and suggested that the causality relationship has several policy implications which are (Shiu and Lam, 2004; Jumbe, 2004; Yoo, 2005; Mozumdar and Marathe, 2007; Chen et al., 2007; Squalli, 2007; Apergis and Payne, 2009; Ozturk, 2010):
Figure 1.1 Scheme of the study.
1. No causality–It is called a neutrality hypothesis
as there is no causality between energy consumption and GDP which means that neither expansive policies and conservative policies in relation to energy consumption have any effect on economic growth. Therefore, it is supported by the absence of a causal relationship between real GDP and the energy consumption.
2. The unidirectional causality–It is called conservation hypothesis
which suggests that the policy conservation of energy can be implemented with little or no adverse effect on economic growth. This can be applied for the less energy-dependent economy.
3. The unidirectional causality–It is known as growth hypothesis.
It suggests that directly or indirectly the economic growth plays an important role in the process of production which in addition to labor and capital acts as a complement. This implies that the restriction in the usage of energy may negatively affect the growth of the economy and lead to a subsequent increase in the energy which then contributes to the economic growth.
4. Bidirectional causality–It is known as feedback hypotheses.
It is the causality between the economic growth and energy consumption which determines that both these variables are determined together and are affected at the same time.
However, the causal relationship studies among different variables but did not lead to any consensus and it is still the widely debated topic in the energy sector domain. The results produced are conflicting in nature, and there exists no consensus on whether the relationship between different variables for instance, economic growth, and energy consumption is bi-directional or unidirectional. This area of literature survey is important for policy implications on the appropriate implementation of economic and environmental policies as this issue needs further attention.
The table below provides a literature review of the major studies done by various authors using Granger causality to find a unidirectional, bidirectional, or no direction in the relationship among the energy growth, energy consumption and economic growth variables, and technological innovation. This table gives a comprehensive view that what are the variables which have been taken to find out the causal relationship between energy growth, energy consumption and economic growth variables, and technological innovation. It helps us understand which variables affect what and how. There are other studies also in this field which use these variables to calculate the nature of relationship among certain variables using the Granger causality method in different contexts.
The authors contributing to this debate to reach to a clear conclusion have ample scope of improvement (see Table 1.1). The authors need to identify what has been done and what needs to be done to provide a scope of improvement and contribute to this field.
Table 1.1
2. Our study
2.1. Energy consumption
The total energy used and produced by the entire human civilization is what is defined as energy consumption. It does not need to come from a single source. It could totally be a different source which has a greatest impact on the certain process. Because of the globalization, the energy consumption around the world has increased rapidly. The table below shows the energy consumption in Mtoe (Megatonne of oil equivalent) of the top 10 countries around the world as to how much energy they have consumed since the year 2000–2019 Table 1.2.
China has overtaken the United States in energy consumption. China produced one third of the hydropower and half of the world's coal in the year 2019. Moreover, 50% of the nuclear gas was produced by France and USA, 40% of the natural gas was produced by Russia and the United States, and the production of crude oil came from the Middle Eastern country, Saudi Arabia. Canada replaced Qatar as the fourth largest producer of natural gas as a leading producer of energy in 2017 (Enerdata, 2020). Because of the decline in the climatic conditions and growth of economy in 2018, the global electricity consumption was increasing at a slower rate than previous years due to the lower economic growth which was partly also bolstered by strong demands from service and residential sectors as well. However, the slowdown in industrial sector was stable in Russia and India and in USA, the lower demand from residential and industrial sectors contributed to the cut in electricity consumption by 2.2%. With the economic slowdown, the consumption of electricity also reduced in European Union by 1.4%, Japan, South Korea, and Africa. However, from the year 2019 the global electricity consumption in China grew by 4.5% since 2018 as China accounts for 28% of the world's global energy consumption.
Table 1.2
Source: Global energy statistical year book, 2020
2.2. Economic growth
It is defined as the increase in the production of economic services and goods from one time period to another. To simply put it, it is referred to as an increase in the aggregate production in the economy.
It is measured by GDP or gross national products. However, GDP is the most suitable way for measuring the growth of the economy. GDP measures the final production as it does not involve the parts that are constructed to make the products. It involves exports as they are produced within the country. From the growth of economy, imports are subtracted Table 1.3.
The tables below depict GDP growth in the years 2000, 2010, and 2019.
From the above table, we can see that from the Asian region, Japan, has sustained its GDP growth. The growth of Japan in terms of GDP has been indigenous as compared to United Kingdom and France to become the world's second largest economy after China in the Asian region. Japan has supplanted the title of Asian economic miracle. The other economic miracle title holder is China. China faced extreme deprivation before the year 1993 and has lifted hundreds and thousands of people since then. By 1993, China became one of the largest economies squeezing into the list of countries with highest economic growth. From the year 2010, China had surpassed Japan, France, and United Kingdom to obtain the second rank on the list of countries with highest economic growth. By far, they have managed to retain their position till today. The United States has also retained the first spot since 2000. The US economy accounts for 20% of the total global economy output, and in terms of economy, it is much ahead of China.
Table 1.3
Source: World Bank Data.org, 2020
India on the other hand has improved from 2010 to 2019 after nine years to gain the spot on number seven from number nine in the world GDP. India has surpassed France and has even managed to have a higher growth rate since 2010. India is set to move from sixth position to fifth position in the upcoming years as it has been credited as the fastest growing economy among the other large economies surpassing that of China, recently. Brazil was showing 3.4% growth every year. After the shrinking of the economy of Brazil for a brief time in 2009, it rebounded with a 7.5% growth in the following year. Meanwhile Canada has shown considerable growth as it is just one place ahead of Russia.
2.3. Globalization
Globalization was introduced by Dreher (2006) and is based on Clark (2000) & Norris (2000). It is defined as:
Globalization describes the process of creating networks of connections among actors at intra- or multicontinental distances, mediated through a variety of flows including people, information and ideas, capital, and goods. Globalization is a process that erodes national boundaries, integrates national economies, cultures, technologies and governance, and produces complex relations of mutual interdependence
.
An important issue to measure globalization as it is multifaceted concept including economic, social, and political aspects which go beyond indicators such as capital movements and trade indicators (Potraflake, 2015). For the measurement of globalization, KOF globalization index is the most popular one. The KOF globalization index measures the rate of globalization in the countries around the world. For the measurement of the KOF globalization index, there are a core set of indicators or dimensions which are economic, social, and political. The overall index of globalization tries to assess current economic flow, data on information flows, data on personal contact, data on cultural proximity and economic restrictions with the surveyed countries (Table 1.4).
Table 1.4
Source: Statista, 2020
The KOF globalization of Switzerland is the highest in the year 2019 with the index being 91.19 points. The pattern being seen here is that European Union has the highest number of countries with high KOF globalization index as compared to the rest of the countries in the world.
2.4. Energy-growth nexus
Energy is an essential output in all of the production and consumption activities. It is also a key source of industrialization, urbanization, and economic growth as they induce more energy, specifically induced energy (Paul and Bhattacharya, 2004). Most of the studies done in the area of energy-growth nexus are empirically tested studies. Several researches have focused on the variables such as electricity consumption, energy consumption, economic growth, and technological innovations. The studies have used Granger causality tests or Vector AutoRegressive (VAR) models to empirically determine the direction of relationship between the aforementioned variables. The causal relationship between the consumption of energy and the growth of economy has been examined in the context of various countries with the help of country specific data, different variables used, and different techniques have been applied (Ozturk, 2010; Fankhauser and Jotzo, 2018). The studies which have been conducted are empirical in nature and have provided uncertain results which are found sometimes inconclusive (Morimoto and Hope, 2004; Stern, 2004; Lau et al., 2014). However, the studies have indicated that there is a causal relationship which is classified as either short run or long run between energy consumption and economic growth (Acaravci and Ozturk, 2010; Shahbaz et al., 2013).
The empirical relationship of the variables such as unidirectional, bidirectional, or no direction relationship. The direction of causation between these variables has significant implications. For instance, if there exists a unidirectional causality in between the consumption of energy and the growth of economy. It implies that the conservation of energy policies may be implemented with a little or no adverse effects on the growth of the economy of the country. If there exists a unidirectional causality relationship between the consumption of energy to income, the reduced consumption of energy will lead to a fall in income. No causality in either direction implies that energy conservation policies do not affect economic growth which is also referred to as neutrality hypothesis
(Asafu-Adjaye, 2000). Understanding the direction of causality is important for the policy makers for the formulation of the economic and energy growth and development policies to ensure sustainable economic development (Tang and Tan, 2013) and weight of the pros and cons of conservation of electricity policies (Fei et al., 2014).
Granger causality: It is a hypothetical test to investigate causal relationships between two variables. In economics, the word cause
is referred to as Granger cause,
although a more appropriate word might be precedence
(Leamer, 1985). The idea of cause and effect is known as causality; however, it is not the same. For example, a variable X is causal to variable Y, if X is the cause for Y or vice versa.
Vector AutoRegressive (VAR) model: It is used to predict multiple time series variables using a single model. Many authors who have researched upon the energy-growth nexus area have constructed a VAR model to predict the relationship between different variables.
Environmental Kuznets curve: The relationship has been examined between the environmental pollution and the economic growth in other literatures (Pao and Tsai, 2010). The research explores the validity of the EKC. The EKC (Grossman and Kreuger, 1995) curve suggests that is the existence of a U-shaped relationship between the economic growth and the level of pollution, i.e., income per capita and pollutant per capita increases at the same level until a threshold point of income is achieved in which the curve of pollutant growth gets flattened and reversed. This infers that when a certain threshold level of income is achieved, the growth can automatically be achieved without a relative rise in emissions (Irandoust, 2016). This concludes that the problem of environmental degradation can be resolved by economic growth. The nexus between economic growth and environmental degradation has already been studies by various authors. However, it does not test the validity of the EKC. This is because of the following assumptions:
1. Instead of aggregate energy, renewable energy consumption is taken.
2. The EKC method requires modeling of nonlinear relationships, but the methodology used to test the hypothesis is linear.
1. Technological advancements in the energy sector (Pack, 1994): There are also some studies which have not taken into account the technological innovation aspect into the energy-growth nexus. The energy generating methods and the advancements in the production techniques in the energy sector are improving due to the technological advancements because of which the applicability of endogenous growth theory is important. The endogenous growth theory has a robust structure which explains the variations in the renewable energy resources (Pack, 1994). Innovations in technology play a crucial role to reveal the variations in the renewable energy usage and economic growth. Therefore, it is important for the policy makers in order to implement energy policy for sustainable economic growth in the country to find the causality between the energy consumption and the economic growth.
2. Endogenous growth theory: The causal relationship has been established between renewable energy, CO2 emissions, and economic growth. The relationship between environmental pollution, energy, and economic growth has been examined for different countries (Ang, 2007; Soytas and Sari, 2009; Hatzigeorgiou et al., 2011). The results were similar; however, there were some narrow differences due to the adoption of diverse methodologies, different countries, and different time periods. The other study done by the authors was to find the effective relationship between pollutant emission and energy consumption in the United States for the period of 1960–2000. They found that the energy usage and the growth of pollution are affected by the economic growth in the long run (Soytas et al., 2007). Fie et al. (2014) finds the causal relationship between CO2 emissions, technological innovations, clean energy, and growth in Norway and New Zealand from 1971 to 2010. The findings of this study are based on the ARDL approach which says that innovation in technology plays a crucial part in energy-growth nexus. The other empirical study done in the context of Nordic countries (Denmark, Finland, Sweden, and Norway) to find out the causal relationship between economic growth, technological innovation, renewable energy, and CO2 emissions by using the Granger noncausality procedure
developed by Yamada and Toda (1998) and Toda and Yamamoto (1995). There is a unidirectional causality between renewable energy to CO2 emissions in Finland and Denmark and also establishes a bidirectional causality between renewable energy to CO2 emissions in Norway and Sweden and an unidirectional causality between renewable energy and technological innovations in Denmark, Sweden, Norway, and Finland (Irandoust, 2016).
2.5. Information and communications technology in energy sector
With modern technological equipment, the economic activities also expand with the passage of time (Danish & Ahmad, 2018). Information and communications technology (ICT) has revolutionized works, entertainment, and communications all around the world specifically in the industrialized and emerging economies. Moreover, ICT has also proven itself to be a powerful source in the structural transformation and economic growth. ICT adoption although has been challenging, but it also has been proven successful in almost every sector including energy. Shifting from renewable energy resources to conventional energy resources is a paradigm shift which however is costly but also is supported by the smart ICT usage (Mattern et al., 2018). Conventional ICT used in the preservation of energy are embedded web systems, Internet of Things (IOT) (low power sensors), networking and ubiquitous computing. This section discusses ICT as being able to manifest its role in the area of energy sector.
ICT is being able to make better decisions day by day with improving technologies related to resource and energy consumption, supply chain and optimization of production. ICT is being used as a tool to provide energy efficiency in the energy sector. For example, reducing traveling by teleworking and helping to save energy at home. Energy conservation is an important issue in emerging countries such as India, China. Due to colossal population in these countries, environmental sustainability has become an important issue with the rising energy costs, growing infrastructure, and therefore, optimization of processes has been initiated to consume minimal power (Mattern et al., 2010).
The IOT is a huge savior in saving the energy process as they communicate with the household meter for scanning for an alternative cheap source of energy that may be available on the power grid. For example, the energy produced by the intermittent renewable energy sources to cool itself down to below its normal operating temperature and thus store energy. Apart from IOT, ubiquitous computing technologies such as embedded web servers, wireless communications, and low power sensors are also being utilized nowadays in the electronic gadgets and day-to-day activities in order to save energy. These technologies do not need direct user involvement providing new opportunities for energy consumption. Moreover, autonomous vehicles, the concept driven by Tesla CEO, Elon Musk, are making it possible to drive an autonomous car without the usage of fuels such as petrol and diesel. If in future such cars can be utilized, the energy consumption will decrease hence maintaining the preservation of the natural resources in its purest form (Fig. 1.2).
The innovation in the power sector as explained in the figure