Could the Expanding Economic Growth and Trade Openness of the United Kingdom Pose a Threat to its Existing Energy Predicaments

Year 2015, Volume: 5 Issue: 1, 121 - 137, 01.03.2015

Abdulkadir Abdulrashid Rafindadi

Abstract

This study examined whether the expanding economic growth prospects of the UK could pose a threat to its existing energy predicaments. To ensure this, time series data from 1970-2013 was used while the Zivot-Andrew structural break unit root test, the Bayer-Hank combined cointegration test, the ARDL bounds test and the VECM Granger causality test were applied, and this was validated using the innovation accounting test. The findings of the study confirmed the existence of cointegration among the variables. Following to this development, the study discovered that economic growth is negatively linked with energy demand in the UK, while trade openness adds to energy consumption; in addition to that, the position of the capital-labour ratio in UK was discovered to have a composite effect and with significant pressure on the country’s energy consumption. To support the direction of these findings, the study discovered that while a 1% increase in economic growth in UK declines energy consumption by 0.5422% surprisingly however, a 1% increase in Trade openness and capital-labour ratio were found to lead to an escalation of energy demand by 0.9817% and 3.3906% respectively. This statistics may be a threat to the UK energy predicaments only if electricity generation should fall below the expected requirement. In view of this development, the study proposes the need to pursue mix energy policies and strategies that will ensure the use of advanced technology at the industrial level; an exclusive use of renewable energy at the household level and ensure adequate investment priorities within the renewable energy sector among others.

Keywords

Electricity demand, Economic Growth, Innovation accounting test, Zivot-Andrew test