Causal Relationship between Energy Consumption, Economic Growth, and Financial Development: Evidence from South Asian Countries

Abstract

Energy is a challenging and emerging problem in the world. Most South Asian countries have limited means but they cannot utilize a major part of their resources due to the high cost of exploration. However, few countries in this region have sufficient capacity and abundant energy resources to overcome the issues related to energy, but due to several reasons, they are not going to play an effective role in this field. As we know South Asian economies have limited resources and facing energy crises due to these reasons, we conduct research on this region as well. The aim of this study is to examine the relationship between economic growth (GDP), financial development (FD), and energy consumption (ENC) for South Asian countries for the period 1991-2020. For the empirical purpose, panel co-integration approaches are applied. However, the Pooled Mean Group (PMG) long-run result shows that the impact of financial development (FD) and economic growth (GDP) on energy consumption (ENC) is positive and significant. Based on the Vector Error Correction Methodology (VECM) Granger causality results, Conservation Hypothesis holds between the economic growth (GDP) and energy consumption (ENC) in the South Asian Region both in the short-run as well as in the long run. Moreover, the results also indicate that two-way causality exists between financial development (FD) and energy consumption.