The Long-Run Causal Relationship between Transport Energy Consumption and GDP: Evidence from Heterogeneous Panel Methods Robust to Cross-Sectional Dependence

Abstract

This paper analyzes data from 107 countries, spanning 1971-2009, and grouped into three income-based panels to determine the direction and sign of panel long-run causality between transport energy consumption per capita and real GDP per capita. The methods employed address heterogeneity and (at least mitigate) cross-sectional dependence (both of which are present in the data). Panel long-run Granger-causality was determined to run from GDP per capita to transport energy consumption per capita. Yet, there was evidence that the causal relationship was highly heterogeneous since enough countries exhibited significant Granger-causality running from transport energy consumption to GDP in each panel that such causal possibility could not be pervasively rejected. In contrast to those heterogeneous causality results, the sign of the long-run relationship was highly uniform across countries as two-thirds to three-quarters of countries had significant, positive elasticity estimations. Neither the direction nor sign of long-run Granger-causality appears to be a function of income/development level.

Keywords: Transport energy consumption, Panel Granger causality, Cross-sectional dependence, Heterogeneous panels, Developed and developing countries

JEL Classification: C1, C5, Q4