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THE JOURNAL OF ENERGY

AND DEVELOPMENT

Melike E. Bildirici,

“Hydropower Energy Consumption,


Environmental Pollution, and Economic Growth,”
Volume 40, Number 2

Copyright 2015
HYDROPOWER ENERGY CONSUMPTION,
ENVIRONMENTAL POLLUTION, AND
ECONOMIC GROWTH

Melike E. Bildirici*

Introduction

E nvironmental pollution is a world problem in which globalization plays


a significant role. Among the changes in production structure caused by
globalization, developed countries have become more service-oriented and de-
pendent upon the importation of manufactured goods from developing countries.
As a result, developed countries may partially isolate their domestic economies
from their environmental performance.1
Carbon dioxide (CO2) emission levels have risen due not only to increased
economic development but also as a consequence of changes in the structure of
production and consumption in society. Regardless of its causes, increased CO2
emissions invariably cause environmental pollution. In this process, the analysis
of the relationship between economic growth, energy consumption, and environ-
mental pollution has become increasingly important. In such analyses, the problem
of environmental pollution can be seen to be closely tied to the hypothesis of an

*Melike Bildirici, Professor at the Yildiz Technical University in Istanbul, Turkey, holds a B.S.
from Marmara University (Istanbul) and earned both her M.A. and Ph.D. degrees in economics from
that university. Dr. Bildirici’s publications have appeared in numerous publications including The
Journal of Energy and Development, Energy Economics, Energy, Biomass and Bioenergy, Global
Change Biology and Bioenergy, Journal of Family History, Journal of Renewable and Sustainable
Energy, South African Journal of Economics, JESA, Romanian Journal of Economic Forecasting,
ECECSR, Expert Systems with Applications, Applied Econometrics and International Development,
International Journal of Applied Econometrics and Quantitative Studies, and Journal of Economic
and Social Research.

The Journal of Energy and Development, Vol. 40, Nos. 1 and 2


Copyright  2015 by the International Research Center for Energy and Economic Development
(ICEED). All rights reserved.
189
190 THE JOURNAL OF ENERGY AND DEVELOPMENT

environmental Kuznets curve (EKC). G. Grossman and A. Krueger, N. Shafik and S.


Bandyopadhyay, N. Shafik, T. Seldon and D. Song, M. Tucker, M. Cole et al., and S.
De Bruyn et al. all determined inverted U-shaped environmental Kuznets curve.2
While several studies have analyzed a U-shaped EKC, some have focused on
greenhouse gas (GHG) emissions and CO2 emissions in international trade within
the framework of globalization.3 Other papers have investigated the relationship
between economic growth, energy consumption, and environmental pollution. For
example, A. Jalil and S. Mahmud found that unidirectional causality runs from
economic growth to CO2 emissions in China and indicated that, in the long term,
CO2 emissions were determined by gross domestic product (GDP) and energy
consumption.4 B. Saboori and A. Soleymani examined the relationship among
CO2 emissions, economic growth, and energy consumption based on the EKC
hypothesis for Iran by using an autoregressive distributed lag (ARDL) method for
the period from 1971 to 2007.5 While their results do not support the EKC hy-
pothesis that assumes an inverted U-shaped relationship between income and
environmental degradation, the long-term results showed that energy consumption
has a positive and significant impact on CO2 emissions. J.-H. Hwang and S.-H.
Yoo assessed the short- and long-run causality between energy consumption, CO2
emissions, and economic growth in Indonesia.6 They determined that there was
a bidirectional causality between energy consumption and CO2 emissions.
This paper analyzes the relationship between environmental pollution, economic
growth, and hydropower energy consumption, which is a key non-polluting source of
renewable energy. In the next section, we will provide an economic overview of
hydropower energy. This will be followed by a discussion of the literature on envi-
ronmental pollution, hydropower energy consumption, and economic growth. Sub-
sequently, the econometric theory and methodology will be identified, followed by
our empirical results and a presentation of our conclusions and policy implications.

Economic Background of Hydropower Energy

Since its signing, the Kyoto Protocol has set binding obligations to reduce GHG
emissions and marked an important turning point in efforts to promote the con-
sumption of renewable energy. In the convention signed at the Earth Summit in
Rio de Janeiro in 1992, the threat of climate change spurred many countries to
increase their support of renewable energy.7
Hydropower is a type of renewable energy that is derived from flowing water.
In fact, hydropower is water, which itself is renewable and not consumed in the
electricity-generating process. Though most governmental energy policies accept
hydropower as a renewable resource, others argue that hydropower is not a re-
newable resource because of its potentially serious impact on natural resources,
often fish or other wildlife.8
HYDROPOWER, POLLUTION, & ECONOMIC GROWTH 191

In the 21st century, since growing populations and modern technologies have
begun to require vast amounts of electricity to create, build, and expand, hydro-
power has become established worldwide as one of the principal energy-producing
technologies. The capacity of large hydroelectric schemes can be several times
that of a conventional power station. Furthermore, they are highly efficient, re-
liable, and sustainable in the long term.9 However, whether a particular hydro-
electric installation is economically competitive with fossil-fuel power plants
depends upon a number of factors, such as fuel and construction costs.
Nevertheless, according to many examples, hydroelectric power plants are
clearly economically superior to comparable thermal power plants.10
In general, hydropower offers numerous social benefits, including flood control,
water supply, low-cost energy, and generally positive effects on the atmospheric
ecosystem.11 Furthermore, from an economic perspective, the benefits of hydro-
power are numerous: the direct creation of employment opportunities; the purchase
and transport of construction material; employment opportunities due to the indus-
try’s multiplier effect, which increases expenditure and creates more opportunities
for new industries; its inexpensiveness in comparison to all other energy sources; and
its provision of cheap electricity to other industries that may, in turn, create surplus
revenue.12 At the same time, hydropower has great potential to cultivate regional
cooperation and development as well as to allocate increasingly scarce water re-
sources and reduce a range of economic, social, and environmental risks.13
To analyze the relationship between environmental pollution, economic
growth, and hydropower energy consumption we used the following demand
function for hydropower energy consumption
C ¼ f ðHEC; Y Þ ð1Þ

where HEC is hydropower energy consumption, C is carbon dioxide consumption


and Y is the real per-capita GDP. In log-linear form, we obtained the following
econometric specification:
ct ¼ a0 þ a1 yt þ a2 hect þ et ð2Þ

The lower case letters show that the variables are expressed in logarithms; et is
the error term; and a0, a1, and a2 are parameters to be estimated. The income
elasticity for environmental pollution is expected to be positive.

The Literature of Energy Consumption and Economic Growth

In pursuit of the pioneering research by J. Kraft and A. Kraft, E. Berndt,


A. Akarca and T. Long, J. Proops, E. Yu and B. Hwang, E. Yu and J. Choi, and
U. Erol and E. Yu, many papers have analyzed the relationship between energy
192 THE JOURNAL OF ENERGY AND DEVELOPMENT

consumption and economic growth.14 Based upon the resultant literature, four
hypotheses on the direction of causality have been advanced: the “neutrality
hypothesis,” the “conservation hypothesis,” the “growth hypothesis,” and the
“feedback hypothesis.”
The literature raises two important, diametrically opposed points about the
relationship between economic growth and energy consumption. On the one hand,
energy consumption is a primary source of economic growth15 and, accordingly,
energy is an important factor in achieving economic development and/or growth
and social progress.16 On the other hand, energy plays a minimal or neutral role in
economic growth—in the literature known as the “neutrality hypothesis” that
argues that since energy consumption constitutes a small portion of the GDP,
energy consumption does not have a significant impact on economic growth.17 As
a result, when economies grow, production shifts to being less energy intensive
and to spawning service sectors, as aforementioned.18
There is very limited literature investigating the relationship between hydro-
power energy consumption and economic growth when compared with the
number of papers on other forms of renewable energy. The relationships between
economic growth and three sources of energy for Ghana—charcoal, petroleum,
and hydroelectricity—was evaluated by E. Abakah.19 According to the author’s
results, there is a significant negative correlation for charcoal and a positive
correlation with respect to the consumption of hydroelectricity and petroleum.
E. Ziramba assessed the relationship between hydroelectricity consumption
and economic growth for three African countries during the 1980–2009 period.20
For Egypt, he concluded that there is support for the neutrality hypothesis. The
feedback hypothesis was confirmed in Algeria. For South Africa, the findings
suggest that unidirectional causality exists running from economic growth to
hydroelectricity consumption, that is, the conservation hypothesis is supported.
Now we will turn our attention to this paper’s methodology.

Data and Econometric Methodology

Data: The annual data used in this study cover the period from 1961 to 2011 for
Austria, Belgium, Denmark, Finland, France, Germany (1970–2011), Iceland, Italy,
Ireland, Portugal, Spain, Sweden, Switzerland (1981–2011), Turkey, and the United
Kingdom. The variables in this study are hydropower energy consumption (hec),
carbon dioxide emissions (c) as a measure of environmental pollution, and real
per-capita GDP (y). They are taken as hec = log(hec), c = log(c), and y = log(y). Real
per-capita GDP data were collected from the World Bank. The hydro energy con-
sumption and carbon dioxide emissions data were collected from the International
Energy Agency and BP Statistical Review of World Energy. In this paper, it was
accepted that hydro energy production equals hydro energy production.
HYDROPOWER, POLLUTION, & ECONOMIC GROWTH 193

Methodology: In the present study, the ARDL bounds testing approach in-
troduced by M. Pesaran and Y. Shin21 and further extended by M. Pesaran, Y. Shin,
and R. Smith22 was used to examine the relationship between hydropower pro-
duction, CO2 emissions, and economic growth in selected countries. The ARDL
approach is based on the estimation of an unrestricted error-correction model.
The ARDL method is based on the F-statistics with critical F-values given by
Pesaran et al.23 for large samples and by Narayan24 when small samples were
used. The critical value of the F-statistics computed by both studies depend upon
the assumption that the variables are I(0) and/or I(1). When the computed
F-statistic exceeds the upper critical bounds, then the null hypothesis of no
cointegration is rejected by implying cointegration. When the F-statistic falls
below the lower critical bounds value, then the alternative hypothesis of coin-
tegration (H1) is rejected by determining no cointegration. However, if the
computed F-statistic falls between the critical bounds, then the result of coin-
tegration is uncertain.
Although ARDL is a highly important approach for cointegration, it possesses
two shortcomings. First, it fails to provide robust results in the presence of I(2)
variables;25 one set of critical values assumes that all variables in the ARDL model
are I(0) and or I(1). Second, it assumes the existence of a unique cointegration
vector.26 To dispel any doubt about the possible existence of multiple cointegra-
tion vectors, Johansen’s cointegration method was used to confirm the presence of
a unique cointegration method.27
Xm Xn Xp
Dct ¼ a0 þ b Dcti þ
i¼1 i
u Dyti þ
i¼0 i i¼0
gi Dhecti þ d1 ct1
þ d2 yt1 þ d3 hect1 þ et ð3Þ
where D and et are the first difference operator and the white noise term, re-
spectively. The ARDL method follows estimation of regressions in order to obtain
the optimal lag length for each variable. An appropriate lag selection is based on
the Schwartz information criterion (SIC). The null hypothesis of no cointegration
among the variables in equation (3) are H0 : d1 = d2 = d3 = 0 against the alternative
hypothesis H1 : d1 6¼ d2 6¼ d3 6¼ 0. One set of critical values assumes that all
variables in the ARDL model are I(0), while the other is calculated on the as-
sumption that the variables are I(1).
In the second step, if cointegration is established, the conditional ARDL long-
run model for c can be estimated as:
Xm Xn Xp
ct ¼ l0 þ ac þ
i¼1 i ti
qy þ
i¼0 i t i¼0
li hect þ ut ð4Þ

Then, the short-run dynamic parameters are obtained by estimating an error-


correction model associated with the long-run estimates:
194 THE JOURNAL OF ENERGY AND DEVELOPMENT
Xm Xn Xp
Dct ¼ x0 þ b
i¼1 i
Dc ti þ i¼0
ui Dyti þ g Dhecti
i¼0 i
þ jECMt1 þ et ð5Þ

where the residual, et, is independently and normally distributed with zero mean
and constant variance and ECMt-1 is the error-correction term. The ECM as the
error-correction term is defined as following:
Xm Xn Xp
ECM = c  x 0  i=1
b i cti  i=0
ui yti  g hecti :
i=0 i

The short-run coefficients are related to the short-run dynamics of the adjustment
to level. j is a parameter that indicates the speed of adjustment to the equilibrium
level after a shock. It shows how quickly variables converge to equilibrium, and it
must have a statistically significant coefficient with a negative sign.
Toda and Yamamoto Non-Causality Test: While the ARDL method de-
termines the existence or absence of a long-run relationship between variables, the
direction of causality is determined by the modified Wald test (MWT) as sug-
gested by H. Toda and T. Yamamoto.28 The MWT method does not require prior
knowledge of the order of integration of the variables of interest and it is even used
if cointegration does not exist.
Unlike the Granger causality test, the MWT test is less sensitive to problems
with the residuals in finite samples.29
The non-causality model used to analyze the relationships between the vari-
ables was constructed as follows in equations (6) through (8):
Xm Xmþdmax Xm
y ¼ a0 þ uy þ
i¼1 i ti
u y þ
i¼mþ1 2i tj
d hecti
i¼1 i
Xmþdmax Xm Xmþdmax
þ d hectj þ
i¼mþ1 2i
Fc þ
i¼1 i ti i¼mþ1
F 2i ctj þ 2t ð6Þ
Xm Xmþdmax Xm
hec ¼ a1 þ b
i¼1 i
hec ti þ b
i¼mþ1 2i
hectj þ gc
i¼1 i ti
Xmþdmax Xm Xmþdmax
þ g c þ
i¼mþ1 2i tj
ly þ
i¼1 i ti
l y þ 21t
i¼mþ1 2i tj
ð7Þ
Xm Xmþdmax Xm
c ¼ ap þ x
i¼1 i
cti þ x
i¼mþ1 2i
ctj þ ky
i¼1 i ti
Xmþdmax Xm Xmþdmax
þ k y þ
i¼mþ1 2i tj
m hecti þ
i¼1 i
m hectj þ 22t
i¼mþ1 2i
ð8Þ

where 2t N ð0; S2t Þ is the residuals of the model; S2t is the covariance matrices of
2t; q, d, F, b, g, l, x, k, and m are parameters of the model; and dmax is the
maximum order of integration suspected to occur in the system. H0: u1 = 0 shows
the null of non-causality from hec to y, and H0: F1 = 0 "i = 1, 2, … , m from c to y.
HYDROPOWER, POLLUTION, & ECONOMIC GROWTH 195

The null hypothesis of no cointegration is not rejected when gi = 0, li = 0, k i = 0,


and mi = 0. Let u = vec (u1, u2, … um) be the vector to find the mVAR co-
efficients. The modified Wald statistic for testing H0 is:
   
W ¼ T u9R9^ ^ t ; R9 1 Ru
RS2 ^

where u ^ is the ordinary least square estimate for the coefficient u and S^ t is
pffiffiffiffi
a consistent estimate for the asymptotic covariance matrix of T ðu ^  uÞ. The test
statistic is asymptotically distributed as a x 2 with m degrees of freedom.

Econometric Results

In this paper, the estimation process was constructed in six steps. First, unit
root tests were used to determine whether the variables are I(0) and/or I(1). In
the second step, the ARDL bound test was implemented to determine whether
there was a cointegration relationship. Third, to dispel any doubt about the
possible existence of multiple cointegration vectors, Johansen’s cointegration
method was used to confirm the presence of a unique cointegration method.
Fourth, the short-run and long-run parameters were estimated by using an error-
correction model. Fifth, the cumulative sum (CUSUM) and the cumulative sum
of squares (CUSUM-Q) plots were used to check the stability. In the last step,
the Toda and Yamamoto non-causality method was used to specify the direction
of causality.30
Unit Root Tests: The augmented Dickey-Fuller (ADF) test was used to de-
termine variables as I(1). According to the results (table 1), all the variables are
integrated of order I(1).
ARDL Test Results: Table 2 shows the results of the ARDL model estimated
using the Schwartz information criteria (SIC) since Pesaran and Shin determined
that the SIC tends to define parsimonious specifications.31
According to the F-statistics, we have enough evidence to reject the null hy-
pothesis of no cointegration at a 1-percent significance level among hydropower
energy consumption, CO2 emissions, and economic growth for Austria, Belgium,
Denmark, Finland, France, Germany, Iceland, Italy, Ireland, Portugal, Spain,
Sweden, Switzerland, and Turkey. But for the United Kingdom, we do not have
enough evidence to reject the null hypothesis of no cointegration at a 10-percent
significance level.
This simply means that the computed F-statistics for these models are above
the upper bound critical value. For Austria, Denmark, Germany, Ireland, and
Spain, the y is a dependent variable and is determined as Fy (y|hec, c). It was
investigated for other possible cointegration relationships to determine whether
independent variables can be treated as long-run forcing variables. The results
196 THE JOURNAL OF ENERGY AND DEVELOPMENT

Table 1
a
UNIT ROOT TEST FOR THE VARIABLES

First First
Level Difference Level Difference

Austria Belgium
y –1.18 Dy –3.95 y –0.039 Dy –6.057
hec –1.15 Dhec –7.16 hec –2.158 Dhec –8.630
c –1.67 Dc –6.16 c –1.678 Dc –7.187

Denmark Finland
y –1.235 Dy –6.621 y –2.180 Dy –4.994
hec –2.156 Dhec –8.640 hec –2.145 Dhec –8.175
c –1.876 Dc –7.896 c –2.673 Dc –7.623

France Germany
y –1.836 Dy –5.405 y –2.007 Dy –5.364
hec –0.663 Dhec –10.681 hec –2.448 Dhec –6.917
c –0.979 Dc –7.008 c –0.067 Dc –7.266

Iceland Ireland
y –2.570 Dy –4.458 y 1.906 Dy –3.896
hec –1.678 Dhec –8.825 hec –1.916 Dhec –5.264
c 0.623 Dc –6.385 c –2.216 Dc –6.026

Italy Portugal
y 0.042 Dy –6.646 y –1.112 Dy –4.229
hec –2.687 Dhec –9.138 hec –1.650 Dhec –7.253
c –1.141 Dc –6.947 c –2.336 Dc –5.001

Spain Sweden
y –2.089 Dy –3.379 y –1.639 Dy –4.961
hec –1.430 Dhec –8.453 hec –1.712 Dhec –9.328
c –2.255 Dc –5.439 c 0.070 Dc –7.807

Switzerland Turkey
y –0.532 Dy –4.022 y –0.567 Dy –5.713
hec –1.287 Dhec –7.680 hec –2.114 Dhec –9.071
c 0.069 Dc –7.807 c –0.099 Dc –7.185

United Kingdom
y –1.523 Dy –3.568
hec –1.087 Dhec –8.799
c –0.134 Dc –7.918

a
y = real per-capita gross domestic product; c = carbon dioxide emissions; and hec = hydropower
energy consumption.
HYDROPOWER, POLLUTION, & ECONOMIC GROWTH 197

Table 2
a
BOUNDS TESTING FOR COINTEGRATION

Fy(y|hec, c) Fhec(hec|c, y) Fc(c|hec, y)

Austria 6.0692 3.2936 3.6332


Belgium 3.1502 6.0261 2.0234
Denmark 5.9950 2.4920 1.8587
Fınland 1.1986 9.4750 2.7855
France 2.8751 13.4180 1.0296
Germany 6.0398 1.0789 1.0032
Iceland 2.7498 0.9843 6.2575
Italy 2.1145 7.7768 3.0789
Ireland 20.1244 2.2245 2.9860
Portugal 3.9809 5.9961 2.2785
Spain 6.3245 1.0425 3.1102
Sweden 1.6208 1.9716 5.1853
Switzerland 1.3470 2.6499 5.5178
Turkey 2.6630 5.1032 2.2285
United Kingdom 1.2322 0.1980 1.8799

a
y = real per-capita gross domestic product; c = carbon dioxide emissions; and hec = hydropower
energy consumption.

were given in table 2. Therefore, the results were determined as evidence of no


cointegration when other variables are treated as the dependent variables. In this
condition, it is determined that there is only one cointegrating relationship for all
countries analyzed (with the exception of the United Kingdom). It was found as
Fhec(hec|c, y) for Belgium, Finland, France, Italy, Portugal, Turkey and Fc(c|y,
hec) for Iceland, Sweden, and Switzerland.
Johansen Cointegration Results: The Johansen cointegration method was
used to confirm the presence of a unique cointegration, thus allaying any doubt
about the possible existence of multiple cointegration vectors.32
Table 3 presents the results of the Johansen cointegration test as determined by
trace methods. The results of the Johansen cointegration method supported the
results of the ARDL method. The Johansen cointegration results fail to reject the
null hypothesis of at most one cointegration relationship.
Long- and Short-Run Results: The ARDL cointegration analysis assumes the
existence of a unique long-run relationship among the variables. The income
elasticity of hydropower energy demand has a negative sign for Belgium, Finland,
France, and Italy. For Portugal, the estimated income elasticities of hydropower
energy demand has a positive sign in the long run; thus, hydropower energy
consumption is a normal good. When analyzing the relation between carbon
emissions consumption to income, we can see that the income elasticity of carbon
198 THE JOURNAL OF ENERGY AND DEVELOPMENT

Table 3
RESULTS OF BOUNDS TESTING AND JOHANSEN FOR COINTEGRATION

Null
Hypothesis Alternative Trace Statistics Trace Statistics

Austria Belgium
r=0 r=1 33.1230 29.9931
r<1 r=2 12.0015 7.1786
r<2 r=3 1.2987 0.9716

Denmark Finland
r=0 r=1 29.9870 44.4998
r<1 r=2 12.9398 14.8870
r<2 r=3 2.5575 3.4595

France Germany
r=0 r=1 35.319 37.5530
r<1 r=2 11.897 11.5977
r<2 r=3 0.446 1.3195

Iceland Italy
r=0 r=1 30.28 31.019
r<1 r=2 13.76 11.329
r<2 r=3 2.12 2.860

Ireland Portugal
r=0 r=1 31.946 34.4703
r<1 r=2 13.896 13.2608
r<2 r=3 2.015 1.6436

Spain Sweden
r=0 r=1 32.1922 36.1520
r<1 r=2 9.7290 12.8380
r<2 r=3 0.7090 0.0699

Switzerland United Kingdom


r=0 r=1 30.1135 21.0076
r<1 r=2 11.6643 10.3356
r<2 r=3 0.1815 1.0724

Turkey
r=0 r=1 32.1099
r<1 r=2 11.1232
r<2 r=3 0.1016

.05 CV: 29.79707; 15.49471; 3.841466


HYDROPOWER, POLLUTION, & ECONOMIC GROWTH 199

emissions consumption has a negative sign for Sweden and Switzerland but is
positive for Iceland. Therefore, carbon emissions consumption is an inferior good
for Sweden and Switzerland. For Iceland, there are positive elasticities co-
efficients; a positive income elasticity of carbon emissions consumption is asso-
ciated with a luxury good. In the literature regarding elasticity and environmental
quality, the research of T. Boercherding and R. Deacon and T. Bergstrom and R.
Goodman determined that the income elasticity of demand for parks-recreation in
the United States was greater than one.33 D. Coursey’s work finds the income
elasticity of demand for environmental quality was e = 2.5.34 D. Costa35 found the
income elasticity of demand for environmental quality as a luxury good, but the
income elasticity for a number of environmental improvements was determined as
e < 1 by B. Kristöm and P. Riera.36
In table 4, the sign of the coefficient of the error-correction term must be neg-
ative. The ECMs change between –0.05112 and 0.72817 to provide stability for the
model. The error-correction term showed a very high speed of adjustment of any
disequilibrium toward a long-run equilibrium state in Belgium, Finland, France,
Iceland, Italy, Ireland, Portugal, and Switzerland because the coefficient of the
error-correction term in these countries varies between –0.50083 and –0.72817.
CUSUM and CUSUM–Q Test: The CUSUM and CUSUM-Q plots are used
to check for stability. The plots of the CUSUM and CUSUMS-Q for all of our case
countries fell within the critical bounds of the 5-percent level of significance;
therefore, the null hypothesis of all the coefficients are stable.
Toda and Yamamoto Causality Results: The ARDL methods do not indicate
the direction of causality, but since there is a long-run relationship between en-
vironmental pollution, hydropower energy consumption, and economic growth,
a causality relationship must exist in at least one direction. The causality re-
lationships between hydropower energy consumption, carbon emissions, and
economic growth are shown in table 5.
The Toda and Yamamoto test do not require prior knowledge of the order of
integration of the variables and it is even used if cointegration does not exist.
Additionally, we tested causality for the United Kingdom.
The non-causality results determined that there is unidirectional causality from
hydropower energy consumption to GDP for Austria. The short-run causality
results found support for the growth hypothesis for Austria. For Germany, there is
unidirectional causality from GDP to hydropower energy consumption. The re-
sults for the United Kingdom supported the neutrality hypothesis. For other
countries, the bidirectional causality hypothesis was found to exist. In other cases,
the feedback hypothesis was found to support the existence of bidirectional cau-
sality between GDP and hydropower energy consumption.
In all countries, with the exception of Sweden and the United Kingdom,
support was found for bidirectional causality between real GDP and carbon
Table 4
a
200

LONG- AND SHORT-RUN COEFFICIENTS FOR AUTOREGRESSIVE DISTRIBUTED LAG (ARDL) ANALYSIS

Long-Run Coefficients Short-Run Coefficients


hec y c dy dhec dc ECM

–0.8523 1.2553 –0.0401 0.0635 –0.0511


Austria (2.1365) - (3.31) - (2.139) (2.141) (4.25)

–0.8921 –0.7198 –0.5730 –0.4611 –0.6601


Belgium - (4.7403) (1.2536) (2.85) - (1.1456) (5.412)

–2.1012 –1.1301 –0.6780 –1.182 –0.3298


Denmark (7.718) - (2.078) - (2.596) (6.452) (–2.554)

–1.1312 –0.4606 –0.6715 –1.2094 –0.5931


Finland - (9.502) (2.98) (4.62) - (6.378) (5.126)

–1.5044 0.8226 –1.0955 –0.6131 –0.7282


France - (15.94) (4.716) (5.589) - (1.8809) (5.53)

–2.0849 0.0326* –0.0636 0.2908 –0.0568


Germany (2.1189) - (0.445) - (2.491) (3.557) (1.985)

0.4798* 0.1102 0.6341 0.2594 –0.5008


Iceland (1.145) (1.896) - (2.6228) (1.7978) - (4.1807)

–1.2301 –0.5300 –0.5502 –1.2987 –0.5400


Italy - (6.269) (2.85) (3.4546) - (3.22) (4.1384)
THE JOURNAL OF ENERGY AND DEVELOPMENT

(continued)
Table 4 (continued)
a
LONG- AND SHORT-RUN COEFFICIENTS FOR AUTOREGRESSIVE DISTRIBUTED LAG (ARDL) ANALYSIS

Long-Run Coefficients Short-Run Coefficients


hec y c dy dhec dc ECM

–1.0285 0.3404* –1.298 0.4407 –0.675


Ireland (12.041) - (1.2436) - (6.487) (1.207)* (8.985)

0.7212 –1.7329 0.4065* –3.2277 –0.5592


Portugal - (2.0078) (2.0879) (1.175) - (4.259) (3.875)

–0.5480 –1.1481 –0.1924 0.1265 –0.2270


Spain (2.5789) - (2.2785) - (1.998) (2.865) (1.985)

0.6378 –0.4828* –0.0727* –0.2740 –0.1506


Sweden (1.1838) (1.953) - (0.888) (2.818) - (3.065)

–0.7966 –0.2590* –0.4973* –0.1617 –0.6242


Switzerland (3.3803) (1.9842) - (0.9805) (2.6045) - (3.2774)

–2.4075 0.9300* 3.7014 –2.7581 –0.2679


Turkey - (1.867) (1.0442) (4.7039) - (4.5007) (2.8940)

a
The t-values are shown in parentheses; * denotes statically insignificant coefficients; y = real per-capita GDP; c = carbon dioxide emissions; hec =
hydropower energy consumption; and ECM = error-correction term.
HYDROPOWER, POLLUTION, & ECONOMIC GROWTH
201
202 THE JOURNAL OF ENERGY AND DEVELOPMENT

Table 5
a
TODA AND YAMAMOTO CAUSALITY

D y ! D hec D c! D y
D hec ! D y D hec ! D c
Country Dy!Dc D c ! D hec

1.0079 8.9653
15.6802 0.0786
Austria 10.1243 11.7569

17.1893 18.1452
8.7523 1.1172
Belgium 18.1623 1.3789

13.4520 21.2245
21.4587 0.8796
Denmark 22.7560 10.1045

20.4536 18.4520
19.8620 1.1425
Finland 10.7580 9.0860

12.4580 12.5860
20.7580 1.4523
France 30.7856 23.7586

9.7586 16.1856
1.0075 0.0048
Germany 18.4523 18.0075

10.1526 30.0786
12.7586 1.8956
Iceland 25.2063 1.0726

20.5869 23.2652
23.5860 0.1426
Italy 24.2021 30.2342

18.1674 9.9026
10.1946 0.0075
Ireland 11.4563 22.1426

20.2145 15.1542
19.1075 1.1108
Portugal 23.8542 18.1846

(continued)
HYDROPOWER, POLLUTION, & ECONOMIC GROWTH 203

Table 5 (continued)
a
TODA AND YAMAMOTO CAUSALITY

D y ! D hec D c! D y
D hec ! D y D hec ! D c
Country Dy!Dc D c ! D hec

30.1425 13.0856
12.7586 1.1225
Spain 11.8563 11.0856

15.8462 1.0896
18.4260 1.0023
Sweden 11.4750 10.5007

9.8756 25.1670
10.5786 1.1186
Switzerland 9.0076 22.7457

18.4524 13.1026
16.7459 1.1023
Turkey 17.1175 16.8960

1.0110 0.3560
0.5230 0.0722
United Kingdom 1.0560 1.1020

a
y = real per-capita gross domestic product; c = carbon dioxide emissions; and hec = hydropower
energy consumption.

dioxide emissions. When investigating the relationship between carbon dioxide


emissions and hydropower energy consumption, a non-causality relationship
exists for Belgium, Iceland, and the United Kingdom; however, causality was
found from carbon dioxide emission to hydropower energy consumption for
other countries. The causality results for the United Kingdom supported the
ARDL results.

Conclusion

In this paper, we investigated the relationship between environmental pollu-


tion, hydropower energy consumption, and economic growth in selected countries
utilizing the ARDL method for analysis. Our findings indicated that the income
elasticity of hydropower energy demand has a negative sign for Belgium, Finland,
France, and Italy. Carbon emissions consumption is an inferior good for Sweden
204 THE JOURNAL OF ENERGY AND DEVELOPMENT

and Switzerland, while it is found to be a luxury good for Ireland. In previous


research, T. Boercherding and R. Deacon, T. Bergstrom and R. Goodman, D.
Coursey, and D. Costa determined that the income elasticity of demand for en-
vironmental quality was a luxury good.37
According to our causality results, for Germany the conservation hypothesis
determines the unidirectional causality running from GDP to hydropower energy
consumption. Energy conservation policies, such as efficiency improvement
measures and demand management policies, designed to reduce hydropower
energy consumption and waste, may not have an adverse impact on economic
growth. These hypotheses are supported in cases when an increase in economic
growth causes an increase in hydropower energy consumption. For Austria,
the growth hypothesis suggests unidirectional causality running from hydro
energy consumption to GDP. The growth hypothesis postulates that energy
consumption has played a vital role in economic growth both directly and in-
directly. Since an increase in hydropower energy consumption has a positive
impact on economic growth, energy conservation-oriented policies that reduce
hydropower energy consumption can impact economic growth. For the United
Kingdom, the neutrality hypothesis was determined. For other countries, a bi-
directional causality hypothesis was determined. In these countries, the feed-
back hypothesis accepts the existence of bidirectional causality between GDP
and hydropower energy consumption. The feedback hypothesis determines the
interdependent relationship between hydropower energy consumption and
economic growth, whereby each serves as a complement to the other.
In the countries analyzed, with the exception of Sweden and the United
Kingdom, the evidence supported bidirectional causality between real GDP and
carbon dioxide emissions. When investigating the relationship between carbon
dioxide emissions and hydropower energy consumption, a non-causality relation-
ship exists for Belgium, Iceland, and the United Kingdom; however, causality was
found from carbon dioxide emissions to hydropower energy consumption for other
countries.
In order to avoid negative effects arising from environmental pollution, gov-
ernments should seek to avoid environmental pollution caused by the economy’s
dependence on fossil fuels for energy, which will worsen environmental condi-
tions. On the other hand, hydropower energy serves as a type of renewable energy
that is a semi-public good and which brings about a solution to the environmental
problems associated with fossil-fuel energy consumption.

NOTES
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