Energy Consumption and Economic Growth in Vietnam: Threshold Cointegration and Causality Analysis

Year 2011, Volume: 1 Issue: 1, 1 - 17, 01.03.2011

Phung Thanh Binh

Abstract

This study investigates the energy consumption-growth nexus in Vietnam. The causal relationship between the logarithm of per capita energy consumption (LPCEC) and the logarithm of per capita GDP (LPCGDP) during the 1976-2010 period is examined using the threshold cointegration and vector error correction models for Granger causality tests. The estimation results indicate that the LPCEC and LPCGDP for Vietnam are cointegrated and that there is a strong uni-directional causality running from LPCGDP to LPCEC, but not vice versa. It is also found that the effect of LPCGDP on LPCEC in Vietnam is time-varying (i.e. significantly different between before and after the structural breakpoint, 1992). The research results strongly support the neoclassical perspective that energy consumption is not a limiting factor to economic growth in Vietnam. Accordingly, an important policy implication resulting from this analysis is that government can pursue the conservation energy policies that aim at curtailing energy use for environmental friendly development purposes without creating severe effects on economic growth. In future, the energy should be efficiently allocated into more productive sectors of the economy.

Keywords

Energy consumption, Economic growth, Cointegration, Granger causality, Vietnam