Skip to main content

Advertisement

SpringerLink
Log in

Does energy intensity matter in the nexus between energy consumption and economic growth regarding capital-energy substitution?

  • Research Article
  • Published:
Environmental Science and Pollution Research Aims and scope Submit manuscript

Abstract

This article investigates how the non-linear connection between energy consumption and economic development is influenced by energy intensity level in the context of energy-capital substitution. We firstly analyze the substitutability/complementarity between energy and capital by estimating VES production function within the standard Solow growth model framework for 58 countries over the period of 1975–2017. The selected countries are classified into four groups according to their relative energy intensity levels and their accessibility to energy. The estimation findings reveal that energy and capital are complements in the final output for each country group. Hence, in this paper, as further analysis, the study examines whether or not energy consumption always fosters economic growth. We investigate the non-linear link between energy consumption and economic development by constructing a panel smooth transition regression (PSTR) model for each country group and looking at the impact of energy intensity in this relationship. The empirical results provide that for each country group, there is a threshold level for energy intensity. Regardless of whether a country is a net energy exporter or net energy importer, it needs to use energy efficiently and not exceed the ideal energy intensity level in both production and consumption to maintain long-term economic growth.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Data availability

The datasets supporting the results of this article are included within the article and its additional files.

Notes

  1. Lazkano and Pham (2016) adopted the country classification according to the World Bank database for income classification and to Yale University’s Environmental Performance Index (EPI) for environmental classification.

  2. Energy intensity is used to monitor and compare the energy efficiency of countries, sector, and businesses. Energy intensity level is determined by calculating the consumed energy amount in order to produce one unit of product. Thus, increase in energy intensity value is an indicator of less energy efficiency. Quantitatively, it can be showed as 1/energy efficiency (Fisher-Vanden et al. 2004). Therefore, between the two countries that produce the same output during the same time interval, the one that consumes more energy would have the higher energy intensity. In addition to less energy consumption, the low energy intensity also shows the more efficient usage of energy resources during the production process (Aydin and Onay, 2020).

  3. The EoS between energy and capital for VES production function is σ(K,E) = 1 + b2*(K/E)

References

  • Adetutu MO (2014) Energy efficiency and capital-energy substitutability: evidence from four OPEC countries. Appl Energy 119:363–370. https://doi.org/10.1016/j.apenergy.2014.01.015

    Article  Google Scholar 

  • Altunc OF, Yildirim A (2020) Capital-energy substitution: does energy sources matter for the elasticity of substitution? An empirical investigation for OECD countries. Siyasal: Journal of Political Sciences 29(2):367–378

    Google Scholar 

  • Apergis N, Payne JE (2010) Renewable energy consumption and economic growth: evidence from a panel of OECD countries. Energy Policy 38(1):656–660

    Article  Google Scholar 

  • Aqeel A, Butt MS (2001) The relationship between energy consumption and economic growth in Pakistan. Asia-Pacific Development Journal 8(2):101–110

    Google Scholar 

  • Arnberg S, Bjørner TB (2007) Substitution between energy, capital and labour within industrial companies: a micro panel data analysis. Resour Energy Econ 29(2):122–136

    Article  Google Scholar 

  • Aydin C, Esen O (2017) Does too much energy consumption harm economic growth for Turkish Republics in the transition process? New evidence on threshold effects. Int J Energy Econ Policy 7(2):34–43

    Google Scholar 

  • Aydin C, Esen Ö (2018) Does the level of energy intensity matter in the effect of energy consumption on the growth of transition economies? Evidence from dynamic panel threshold analysis. Energy Econ 69:185–195

    Article  Google Scholar 

  • Aydin C, Onay RD (2020) Does energy intensity affect the relationship between financial development and environmental pollution? BRAIN. Broad Research in Artificial Intelligence and Neuroscience 11(1):144–156

    Article  Google Scholar 

  • Aydin C, Aydin H, Altinok H (2022) Does the level of energy intensity matter in the effect of logistic performance on the environmental pollution of OBOR countries? Evidence from PSTR analysis. J Environ Plan Manag 1–19. https://doi.org/10.1080/09640568.2022.2030685

  • Barro RJ, Lee JW (2013) A new data set of educational attainment in the world, 1950–2010. J Dev Econ 104:184–198

    Article  Google Scholar 

  • Berndt ER, Wood DO (1975) Technology, prices, and the derived demand for energy. Rev Econ Stat 259–268

  • BP Statistics (2020) Statistical review of world energy 2020 - 69th edition. https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html. (accessed 10 January 2021)

  • Burney NA, Al-Matrouk FT (1996) Energy conservation in electricity generation: a case study of the electricity and water industry in Kuwait. Energy Econ 18(1–2):69–79

    Article  Google Scholar 

  • Cevik EI, Yıldırım DÇ, Dibooglu S (2021) Renewable and non-renewable energy consumption and economic growth in the US: a Markov-Switching VAR analysis. Energy Environ 32(3):519–541. https://doi.org/10.1177/0958305X20944035

    Article  Google Scholar 

  • Cleveland CJ, Kaufmann RK, Stern DI (2000) Aggregation and the role of energy in the economy. Ecol Econ 32(2):301–317

    Article  Google Scholar 

  • Denny M, Fuss M, Waverman L (1981) The substitution possibilities for energy, modeling and measuring natural resource substitution. MIT Press, Cambridge

    Google Scholar 

  • Duffy J, Papageorgiou C (2000) A cross-country empirical investigation of the aggregate production function specification. J Econ Growth 5(1):87–120. https://doi.org/10.1023/A:1009830421147

    Article  Google Scholar 

  • Esen O, Bayrak M (2017) Does more energy consumption support economic growth in net energy-importing countries? J Econ Finance Adm Sci 22(42):75–98. https://doi.org/10.1108/JEFAS-01-2017-0015/full/html

    Article  Google Scholar 

  • Feenstra RC, Robert I, Marcel PT (2015) The next generation of the Penn World Table. Am Econ Rev 105(10):3150–3182

    Article  Google Scholar 

  • Fisher-Vanden K, Jefferson GH, Liu H, Tao Q (2004) What is driving China’s decline in energy intensity? Resour Energy Econ 26(1):77–97

    Article  Google Scholar 

  • Fouquau J, Hurlin C, Rabaud I (2008) The Feldstein-Horioka puzzle: a panel smooth transition regression approach. Econ Model 25:284–299

    Article  Google Scholar 

  • González A, Terasvirta T, Van Dijk D, Yang Y (2005) Panel smooth transition model and an application to investment under credit constraints. Technical Report, Working Paper

  • Huang BN, Hwang MJ, Yang CW (2008) Causal relationship between energy consumption and GDP growth revisited: a dynamic panel data approach. Ecol Econ 67(1):41–54

    Article  Google Scholar 

  • Inklaar R, Timmer, MP (2013) Capital, Labor and TFP in PWT8. 0. University of Groningen (unpublished), 23–24

  • Karagiannis G, Palivos T, Papageorgiou C (2005) Variable elasticity of substitution and economic growth: theory and evidence. In: New trends in macroeconomics, 21–37. Springer, Berlin, Heidelberg

  • Kim J, Heo E (2013) Asymmetric substitutability between energy and capital: evidence from the manufacturing sectors in 10 OECD countries. Energy Econ 40:81–89

    Article  Google Scholar 

  • Klump R, de La Grandville O (2000) Economic growth and the elasticity of substitution: two theorems and some suggestions. Am Econ Rev 90(1):282–291

    Article  Google Scholar 

  • Klump R, Preissler H (2000) CES production functions and economic growth. Scand J Econ 102(1):41–56

    Article  Google Scholar 

  • Komal R, Abbas F (2015) Linking financial development, economic growth and energy consumption in Pakistan. Renew Sustain Energy Rev 44:211–220

    Article  Google Scholar 

  • Lazkano I, Pham L (2016) Can capital-energy substitution foster economic growth? Land Econ 92(3):491–514

    Article  Google Scholar 

  • Lee CC, Chang CP (2007) Energy consumption and GDP revisited: a panel analysis of developed and developing countries. Energy Econ 29(6):1206–1223

    Article  Google Scholar 

  • Lin B, Abudu H (2019) Changes in energy intensity during the development process: evidence in sub-Saharan Africa and policy implications. Energy 183:1012–1022. https://doi.org/10.1016/j.energy.2019.06.174

    Article  Google Scholar 

  • Lucas RE (1988) On the mechanics of economic development. J Monet Econ 22:3–42

    Article  Google Scholar 

  • Moon HR, Perron B (2004) Testing for a unit root in panels with dynamic factors. J Econometrics 122(1):81–126

    Article  Google Scholar 

  • Munir Q, Lean HH, Smyth R (2020) CO2 emissions, energy consumption and economic growth in the ASEAN-5 countries: a cross-sectional dependence approach. Energy Econ 85:104571

  • Narayan PK, Popp S (2012) The energy consumption-real GDP nexus revisited: empirical evidence from 93 countries. Econ Model 29(2):303–308

    Article  Google Scholar 

  • Nijkamp P, Wang S, Kremers H (2005) Modeling the impacts of international climate change policies in a CGE context: the use of the GTAP-E model. Econ Model 22(6):955–974

    Article  Google Scholar 

  • Ocal O, Aslan A (2013) Renewable energy consumption–economic growth nexus in Turkey. Renew Sustain Energy Rev 28:494–499

    Article  Google Scholar 

  • Omay T, Hasanov M, Ucar N (2014) Energy consumption and economic growth: evidence from nonlinear panel co-integration and causality tests. Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), 34(2), 36–55

  • Ozatalay S, Grubaugh S, Long TV (1979) Energy substitution and national energy policy. Am Econ Rev 69(2):369–371

    Google Scholar 

  • Palivos T, Karagiannis G (2004) The elasticity of substitution in convex models of endogenous growth. Political Economy Perspectives on the Greek Crisis-Debt

  • Psacharopoulos G (1994) Returns to investment in education: a global update. World Dev 22(9):1325–1343

    Article  Google Scholar 

  • Razzaq A, Sharif A, Najmi A, Tseng ML, Lim MK (2021) Dynamic and causality interrelationships from municipal solid waste recycling to economic growth, carbon emissions and energy efficiency using a novel bootstrapping autoregressive distributed lag. Resour Conserv Recycl 166:105372. https://doi.org/10.1016/j.resconrec.2020.105372

  • Revankar NS (1971) A class of variable elasticity of substitution production functions. Econometrica 39(1):61–71

  • Romer PM (1986) Increasing returns and long-run growth. J Polit Econ 94:1002–1037

  • Shen K, Whalley J (2017) Capital–labor–energy substitution in nested CES production functions for China. In: The economies of China and India cooperation and conflict: volume 2: Competitiveness, External Cooperation Strategy and Income Distribution—Changes in China 15–27. https://doi.org/10.3386/w19104

  • Stern DI (2000) A multivariate cointegration analysis of the role of energy in the US macroeconomy. Energy Econ 22(2):267–283

    Article  Google Scholar 

  • Smyth R, Narayan PK, Shi H (2011) Substitution between energy and classical factor inputs in the Chinese steel sector. Appl Energy 88(1):361–367

    Article  Google Scholar 

  • Tallman EW, Wang P (1994) Human capital and endogenous growth evidence from Taiwan. J Monet Econ 34(1):101–124. https://doi.org/10.1016/0304-3932(94)01152-4

    Article  Google Scholar 

  • Teräsvirta T, Tjøstheim D, Granger CW (1994) Aspects of modelling nonlinear time series. Handb Econ 4:2917–2957

    Google Scholar 

  • Wesseh PK Jr, Lin B (2020) Energy substitution and technology costs in a transitional economy. Energy 203:1–9

    Article  Google Scholar 

  • World Bank (2021) Energy imports, net (%of energy use). https://data.worldbank.org/indicator/EG.IMP.CONS.ZS?view=chart, (accessed 20 February 2021)

  • Yıldırım A (2018) Private-public capital, elasticity of substitution and economic growth. Hacettepe University Graduate School of Social Sciences Department of Economics Ph.D. Dissertation, Ankara-Turkey

  • Yıldırım DÇ, Yıldırım S, Demirtas I (2019) Investigating energy consumption and economic growth for BRICS-T countries. World Journal of Science, Technology and Sustainable Development. https://doi.org/10.1108/WJSTSD-12-2018-0063

    Article  Google Scholar 

  • Yuxiang K, Chen Z (2010) Financial development and environmental performance: evidence from China. Environ Dev Econ 16(1):93–111. https://doi.org/10.1017/S1355770X10000422

    Article  Google Scholar 

  • Zheng Z, Liu D (2004) Uncertainty of capital-energy substitution in China. Oper Res Manag Sci 13(2):74–78

    Google Scholar 

  • Zhou P, Zhang H, Zhang LP (2022) The drivers of energy intensity changes in Chinese cities: A production-theoretical decomposition analysis. Appl Energy 307:118230. https://doi.org/10.1016/j.apenergy.2021.118230

    Article  Google Scholar 

Download references

Acknowledgements

This research paper is derived from Reyhan Demir Onay’s Ph.D. dissertation titled “Energy, Energy Intensity, Elasticity of Substitution and Economic Growth with VES Production Function,” completed under the supervision of Assoc. Prof. Celil Aydin.

Author information

Authors and Affiliations

  1. Department of Economics, Faculty of Economics and Administrative Sciences, Bandırma Onyedi Eylül University, 10200, Balikesir, Turkey

    Celil Aydin

  2. Department of Economics, Social Science Institute, Bandırma Onyedi Eylül University, 10200, Balıkesir, Turkey

    Reyhan Demir Onay

  3. Department of International Relations, Faculty of Economics and Administrative Sciences, Ankara Haci Bayram Veli University, 06570, Ankara, Turkey

    İsmail Şahin

Authors
  1. Celil Aydin
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Reyhan Demir Onay
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. İsmail Şahin
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

Reyhan Demir Onay and Celil Aydin performed the analyses with constructive discussions. Reyhan Demir Onay and Ismail Sahin wrote the manuscript. All the authors read and approved the final manuscript.

Corresponding author

Correspondence to Celil Aydin.

Ethics declarations

Ethics approval and consent to participate

Not applicable.

Consent for publication

Written informed consent for publication was obtained from all participants.

Conflict of interests

The authors declare no competing interests.

Additional information

Responsible Editor: Arshian Sharif

Publisher's note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary file1 (RAR 871 KB)

Appendıx

Appendıx

Table 9

Table 9 Country classification
Full size table

Table 10

Table 10 Descriptive statistics of variables (VES)
Full size table

Table 11

Table 11 Descriptive statistics of variables (PSTR)
Full size table

Table 12

Table 12 Elasticity of substitution by country groups (1975–2917)
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Aydin, C., Onay, R.D. & Şahin, İ. Does energy intensity matter in the nexus between energy consumption and economic growth regarding capital-energy substitution?. Environ Sci Pollut Res 29, 88240–88255 (2022). https://doi.org/10.1007/s11356-022-21927-y

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11356-022-21927-y

Keywords

Search

Navigation