The Relation between Financial Development, Energy Consumption and Economic Growth: Empirical Evidence for the United States

23 Pages Posted: 21 Aug 2014

See all articles by Kim-Song Le

Kim-Song Le

Murdoch University

Kamrul Hassan

Murdoch University

Dominic Gasbarro

Murdoch University

Grant Cullen

Murdoch University

Date Written: August 20, 2014

Abstract

This paper examines the relation between financial development, energy consumption and economic growth in the United States (U.S) for the period 1966-2011. We use a vector error correction model (VECM) to investigate the effect of financial development and energy consumption on economic growth in the U.S. In addition to examining the relation in the long run of the aforementioned variables using Johansen co-integration analysis, we also examine the short-run and long-run causalities between them. In addition to economic growth, financial development and energy consumption variables, we also examine the impact of real interest rate, gross fixed capital formation and trade openness on economic growth. We find that there is at least one co-integrating relation among the variables. There is some evidence that in the long run financial development causes economic growth; however, there is no evidence that economic growth causes financial development. Neither do we find evidence that financial development positively affects energy consumption either in the short- or long-run. However, in the short run, we find some evidence of two-way causality between economic growth and financial development.

Keywords: Financial development, GDP, energy consumption

JEL Classification: O16, E22, E44

Suggested Citation

Le, Kim-Song and Hassan, Kamrul and Gasbarro, Dominic and Cullen, Grant Stewart, The Relation between Financial Development, Energy Consumption and Economic Growth: Empirical Evidence for the United States (August 20, 2014). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: https://ssrn.com/abstract=2484279 or http://dx.doi.org/10.2139/ssrn.2484279

Kim-Song Le (Contact Author)

Murdoch University ( email )

South Street
Murdoch 6150, Western Australia
Australia
61893602362 (Phone)
61893105004 (Fax)

Kamrul Hassan

Murdoch University ( email )

South Street
Murdoch 6150, Western Australia
Australia
618 93606052 (Phone)

Dominic Gasbarro

Murdoch University ( email )

South Street
Murdoch 6150, Western Australia
Australia

Grant Stewart Cullen

Murdoch University ( email )

Murdoch, WA 6150
Australia
618 9360 6026 (Phone)
618 9310 5004 (Fax)

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