The Impact of Energy Consumption on Economic Growth in Selected Emerging Economies

Abstract

The significance of energy, its demand, consumption patterns, and the types of energy policies required for sustainable growth are crucial concerns worldwide, particularly in developing and emerging economies over the past decades. As emerging economies undergo transitional phases involving structural, political, or policy reforms, energy assumes a vital role in achieving the objective of growth. Our GDP-energy consumption model indicates that GDP is significantly and positively influenced by increased energy consumption. This finding underscores the integral role of energy in driving economic growth in emerging economies. The results from the causality analysis reveal a unidirectional causality running from energy consumption to GDP per capita. This supports the energy-headed-growth hypothesis, which posits that energy consumption is a crucial driver of economic growth.  Emerging economies require substantial energy to power their productive sectors, which in turn boosts employment and productivity levels. The relationship between energy consumption and economic growth is evident, highlighting that energy is not merely a facilitator but a prerequisite for growth in these nations. As industries expand and urbanization progresses, the demand for energy escalates, necessitating robust energy policies that ensure a stable and sustainable supply. The empirical findings of this study suggest that emerging economies are highly dependent on energy. Any disruptions in energy supply, such as energy shocks, could have detrimental effects on income levels and overall economic stability. This dependency underscores the vulnerability of these economies to fluctuations in energy supply and prices, further emphasizing the need for comprehensive energy policies that can mitigate such risks. To foster sustainable growth, emerging economies must focus on diversifying their energy sources and investing in renewable energy. Such strategies can reduce the reliance on any single energy source and enhance energy security. Additionally, improving energy efficiency can help these economies maximize the benefits of their energy consumption, ensuring that growth is not only robust but also sustainable in the long run.