Economic Globalization and Energy Demand

By Hemachandra Padhan

The world has been focusing more on a globalized economy through social integration, political 
integration,    economic    integration,    technology    development,    international    finance  
  and multinational   operation   of   transactional   corporations   and   international   trade.  
 With   the development of advanced technology, R and D spillover, international trade and social, 
political and economic integrations, the process of economic globalization has been changing 
rapidly and worldwide . The rising dependence on globalization impacts economic 
conditions and influences human life and welfare's social and political aspects. According to 
Gozgor and Ranjan  , rapid   economic   globalization  improves  the   country's   welfare  
 through  the channels  of  better  international  relations  via  trade  and  capital  flows.  
High  dependence  on globalization enhances the better economic performance of developed and 
developing economies in  the  long  run  .  However,  the  current  globalization  
process  and  structural transactions  have  been  necessary  for  a  better  linkage  between  
globalization  and  the  country's economic  condition.  Still,  it  also  makes  a  natural  
relationship between  economic  globalization  and energy consumption demand.
 

Moreover,  in  the  last  few  decades,  the  role  of  globalization  and  the  environment  has  
been debated issues due to significant environmental consciousness, unfavourable climate change and 
serious  attention  on  industrialization,  the  transport  sector  and  building.  The  share  of  
carbon emissions   (CO₂)   proxy  for   environmental   quality  has   been   increasing  in   our  
 planet   and contributing to greenhouse gas emissions.  According  to  Intergovernmental  Panel  on  Climate  Change, CO₂ emissions  contribution  to  air  pollution  was  increasing  day-by-days  and  reported  as  the  main component  for  reducing  environmental  quality.
 

• Language: English
• Publisher: MOHAMMED ABDUL SATTAR
• Release date: Jul 24, 2023
• ISBN: 9798223019510

Book preview

Economic Globalization and Energy Demand

Hemachandra Padhan

Table of Contents

Title Page No.

TABLE CONTENT LIST OF TABLES LIST OF FIGURES

............................................................... IV

............................................................... VII

............................................................... VIII

4.2.3.  Renewable energy consumption and oil prices 67

relationship ....................................................................

4.2.4.  Renewable energy consumption and Globalization(s) 68

relationship ...................................................................

4.3. Theoretical framework on renewable energy ........................ 70

4.4 Data, Model and Methodology ........................................ 71

4.4.1. Data ............................................................................... 71

4.4.2. Econometric Methodology.................................................... 72

4.4.3. Model Estimation ........................................................... 75

4.5. Findings and Discussion ............................................... 77

REFERENCES.................................................................................

LIST OF THE TABLES

Table No. Title Page No.

1.1 Data description and sources ................................................. 11

2.1  Pesaran and Yamagata (2008) Slope homogeneity test ..................... 31

2.2  Cross sectional dependence and Second generation unit-root tests .... 31

2.3  Westerlund test (2007) panel cointegration test .............................. 32

2.4 Chudik and Pesaran (2015) CS-ARDL test..................................... 33

2.5 Eberhardt (2012) Augmented Mean Group (AMG) test.................... 36

3.1.  Regressions capture cross-sectional dependence............................ 52

3.2.  Panel Correlated Standard Error (PCSEs) and Feasible Generalized 54

Least Squares (FGLS) .................................................................

3.3.  Eberhardt (2012) Augmented Mean Group (AMG) test.................... 56

3.4. Pesaran (2006) CCEMG test .......................................................... 56

3.5. Hainmueller and Hazlett Kernel-based Regularized Least Squares 58

(2014)   ..........................................................................................

4.1. Summary statistics and correlations ................................................ 81

4.2. Unit root tests ............................................................................... 83

4.3 fixed effect models....................................................................... 85

4.4 fixed effect models....................................................................... 89

4.5 fixed effect models....................................................................... 90

4.6 fixed effect models....................................................................... 91

4.7 fixed effect models....................................................................... 92

4.8 fixed effect models....................................................................... 93

4.9  Machado and Silva Panel Quantile regression (2018) ....................... 95

4.10  Machado and Silva Panel Quantile regression (2018) ....................... 97

4.11  Machado and Silva Panel Quantile regression (2018) ....................... 98

4.12  Machado and Silva Panel Quantile regression (2018) ....................... 100

4.13  Machado and Silva Panel Quantile regression (2018) ....................... 101

4.14  Machado and Silva Panel Quantile regression (2018) ....................... 103

LIST OF FIGURES

CHAPTER I

INTRODUCTION

1. 1. Background of the study

The world has been focusing more on a globalized economy through social integration, political integration, economic integration, technology development, international finance and multinational operation of transactional corporations and international trade. With the development of advanced technology, R and D spillover, international trade and social, political and economic integrations, the process of economic globalization has been changing rapidly and worldwide (Garett, 2000). The rising dependence on globalization impacts economic conditions and influences human life and welfare’s social and political aspects. According to Gozgor and Ranjan (2017), rapid economic globalization improves the country’s welfare through the channels of better international relations via trade and capital flows. High dependence on globalization enhances the better economic performance of developed and developing economies in the long run (Dreher, 2006). However, the current globalization process and structural transactions have been necessary for a better linkage between globalization and the country’s economic condition. Still, it also makes a natural relationship between economic globalization and energy consumption demand.

According to the International Energy Agency (2020), energy consumption was increasing about 14421 Mtoe in 2020, contributing 3.2% more than in 2017. It has been rising because of fossil fuels consumption globally. The most contributing components are coal, oil and natural gas that share more than 370 Mtoe in 2018. The primary concern is that fossil fuels only contribute 81%

to the production process. At the same time, the usage of renewable energy also increases to 60 Mtoe in 2018 respectively. According to Sustainable Development Goal number 7 (2020), based on affordable, reliable, sustainable and modern cleaner energy, the historical transition of energy explains that the traditional production process uses coal and oil consumption as input and generates output. Later, the conventional mind of using coal and oil transfers to gas and renewable energy in the production process for rising output or economic growth. Renewable energy covers 17% of energy consumption; it is predicted to increase to 85% and RE100 program in 2050. The world total energy supply (TES) also increases to 2.6 times (5519 Mtoe to 14421 Mtoe) from 1971-2018 because of oil decrease to 44% in 1971 to 32% in 2018 and coal

reduces from 40% to 38.2% during 1971-2018 while gas uses 16% in 1971 to 23% in 2018 respectively. Precisely, the OECD economics reduced TES by 38% in 2018 from 61% in 1971. A 1% decline in TES shows almost 50Mtoe decreases. For electricity generation, the OECD economies reduce coal and oil usage in the production process and decline electricity by 200 MWh. They transfer from coal and oil to gas and renewable energy in electricity generation; it generated 3000 MWh in 2019. This transition of energy reduces carbon emission by 7% from 2017 to 2018. On the other side, the OECD economies total final consumption (TFC) of energy has been rising to 3784 Mtoe from 67 Mtoe accounted as 1.8% growth of energy from 1971- 2018. All fossil fuels of gas contribute 60% growth except coal and oil fossil fuels. These fossil fuels are using for industry, building, and transport significantly.

Further, Non-OECD North America’s share of oil is 39%, and gas comprises 22% for heavy importance on the industry and transport sector. Non-OECD Asia also increases TES by 4.1% in 2018 that shares 36% of the energy supply in global TES. The primary energy consumption of

Asia is the industry that consumes 51% of total energy. The Non-OECD Asia share of coal is 5.2%, oil 5.2%, gas 9.2%, nuclear 12.8% and hydro 6.6% over 1971-2018. While Non-OECD European and Eurasia also make attention to raising TES as a share of 4.5% in 2018. Finally, the Non-OECD in the Middle East also accelerates the energy and contributes 14% of global energy in 2018. The Non-OECD economies have been using more coal and oil rather than gas and renewable energy consumption, but the rising trend of using coal and oil are declining, and the amount of renewable energy increases. Therefore, the decreasing trend of oil and coal and accept gas and renewable energy intensity in the production process, the carbon intensity at the global level is a questionable topic to conduct research. Despite the changing transition of energy from coal and oil to gas and renewable energy in the production process, we don’t know it because of economic globalization or economic complexity. Therefore, we are motivated to examine the role of economic globalization and economic complexity on the pattern of energy consumption.

Moreover, in the last few decades, the role of globalization and the environment has been debated issues due to significant environmental consciousness, unfavourable climate change and serious attention on industrialization, the transport sector and building. The share of carbon emissions (CO2) proxy for environmental quality has been increasing in our planet and contributing to greenhouse gas emissions (Lashof and Ahuja, 1990; Solomon et al., 2009; Liu et al., 2020). According to Intergovernmental Panel on Climate Change (IPCC, 2020)¹, CO2 emissions contribution to air pollution was increasing day-by-days and reported as the main component for reducing environmental quality. According to BP Statistical Review of World

¹ https://www.ipcc.ch/

Energy (2020)², the share of Organization for Economic Co-operation and Development (OECD) and Non-OECD CO2 emissions of the total world in 2017 is accounted as 37.2 % and 62.8 %, which is very high as compared to European unions (10.6 %), African countries (3.6 %), Middle East (6.3 %), Europe (12.6 %), and North America (18.3 %) respectively. Therefore, reducing CO2 emissions worldwide is a big question for all the countries. The release of CO2 emissions is the main component for environmental degradation across most countries because of its harmful effect on the health and nature of economic growth. Therefore, a group of social scientists prioritizes environmental issues in their theoretical linkages and empirical research. The world’s major institution voices the problem of environmental degradation caused by global warming and unfavourable climate change.

1. 2. Theoretical and empirical evidence

1.2.1.  globalization

The role of globalization and its impact on economic activities have appeared only after World War II or the initial 1960s. Post-1960s era appeared two situations via more emergences on international trade and importance of Multinational Corporations (MNCs) activity to foster economic activities. Moreover, after the collapse of the Bretton woods regime of 1971-1973, international relations and international trade have been emphasized more seriously for interdependent and integrated for world economic growth (Hirst and Thompson, 2003). More

²