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https://doi.org/10.1007/s00181-018-1559-8
Abstract
This study examines the role of human capital and the Granger causal relationship
between energy and economic growth using data from 56 countries over a period of
1970–2014 on the basis of three perspectives—energy trade status, stages of economic
development, and geophysical locations. Through continuously updated fully mod-
ified estimates that allow for cross-sectional dependence, we find that energy is an
important factor input to economic growth, and the output elasticity with respect to
energy ranges between 0.1 and 0.5 in various subsamples. Energy is a complement to
human capital, and the growth-driving effect of energy is evidenced to be enhanced by
human capital development. Furthermore, the bootstrapped panel Granger causality
test results suggest that energy Granger causes economic growth in energy-exporting,
high-income, and American countries, and therefore, energy conservation policies
are more appropriate in energy-importing, middle-income and non-American coun-
tries. Based on the results, policy synergies between energy and human capital and
multilateral cooperation in promoting energy efficiency should be emphasized.
1 Introduction
B Zheng Fang
fangzheng@suss.edu.sg
1 School of Business, Singapore University of Social Sciences, #05-04, 463 Clementi Road,
Singapore 599494, Singapore
2 The Center for Economic Development Research, Wuhan University, Wuhan, China
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Z. Fang, J. Yu
emission reduction, climate change and global warming. Since the seminal work of
Kraft and Kraft (1978), a large number of the studies have appeared to investigate this
topic in individual or a panel of countries (Ozturk 2010; Payne 2010). More recent
studies have emerged with the advance in econometric techniques and availability of
good panel data. However, the findings are at large inconsistent. This has caused great
concerns as policy implications have become more uncertain.
Scholars have tried to uncover common characteristics and trends from a large
number of studies. Ozturk and Al-Mulali (2015) surveyed 83 research papers and
found that half of the studies show evidence of a bidirectional causal relationship
and 28% of them support energy driving economic growth. Apergis and Tang (2013)
empirically investigated how the model specification and economic development status
can affect the direction of causality between energy and growth using a sample of 85
countries. Their results show that developed and high-income countries are more likely
to support the energy-led hypothesis especially when the multivariate framework is
considered.
While their efforts to examine the validity of the growth hypothesis and explain
sources of inconclusive findings in the existing literature are commendable, the debate
on this topic will continue, given its complexity and importance for policymakers. For
example, Apergis and Tang’s (2013) study was based on the Toda-Yamamoto causality
test for individual countries, and the multivariate framework accounts for only the labor
force and urbanization in addition to energy and economic growth. This is far from
comprehensive considering various econometric methods and different perspectives
employed in the vast energy-growth nexus literature. Other reasons that conflicting
results have been obtained in the literature include distinctive model specifications
and stages of economic development considered in the various studies, as well as dif-
ferences in resource endowments, economic structures, and geopolitical relationships
in different samples.
This study contributes to the existing literature by exploring patterns of the energy-
growth causal link across a large number of countries over a long period of time
(1970–2014) from three perspectives, namely energy endowments, stages of devel-
opment, and regional differences. Since countries with rich energy endowments tend
to have cheaper energy, lower production cost, and more energy-intensive industries
compared to energy-poor countries, they may well exhibit different dynamic rela-
tionships between energy and economic growth. Furthermore, we separate countries
by the income level and region as stages of economic development and geopolitical
links could also affect the energy-growth nexus. Many rich countries have experienced
the structure change from energy-intensive manufacturing industries to less energy-
intensive service industries, while some of the poor countries still stay at the primitive
stages without much reliance on the energy and electricity usage (Hossain 2011). The
dynamics and mechanisms of the energy-growth link can therefore be very different.
On the other hand, the regional factor cannot be ignored as well either due to the
cultural and political closeness or trade and economic reasons (Sadorsky 2012). This
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The role of human capital in energy-growth nexus: an…
may also explain why so many researchers focus on a specific region of the world
(Apergis and Payne 2009a, b; Yildirim et al. 2014).1
More importantly, this study takes the supply-side approach and incorporates the
factor of human capital in the neoclassical production function. The conventional
variables included in the supply-side approach are physical capital and labor as well
as energy and GDP (Stern 2000; Apergis and Payne 2010). However, a recent paper
by Fang and Chang (2016) pointed out that human capital should not be ignored in
the multivariate framework given its well-recognized relevance to economic growth,
especially when the data are now readily available from the Penn World Table (Feenstra
et al. 2015). While their study in the Asia Pacific countries did not explicitly discuss the
role of human capital in the energy-growth link, another study by Pablo-Romero and
Sánchez-Braza (2015) found a substitution relationship between energy and human
capital. They suggested that more worker trainings tend to reduce energy used in the
production process. This study aims to account for the role of human capital explicitly
when examining the energy-growth nexus across countries of the world and is thus
one of the pioneering works in this regard.
Besides the above two contributions, this study takes into consideration the cross-
sectional dependence as well as panel heterogeneity in the analysis. Therefore, the
bootstrap panel Granger non-causality test proposed by Emirmahmutoglu and Kose
(2011) is applied for the causal analysis, and the continuously updated fully modi-
fied (Cup-FM) approach (Bai et al. 2009) is used to estimate the parameters in the
cointegrating equation. To capture the heterogeneous effect of energy in the economic
growth, an interaction term of human capital and energy use is additionally considered
in the coefficient estimation.
This study has three main findings. First, the coefficient estimate on energy in
the energy-augmented neoclassical production function is significant and positive for
all panels of countries, suggesting the importance of energy as a factor input in the
economic growth. This concurs with findings in Fang et al. (2017) who concluded
that human capital cannot be excluded in the cointegration space using the exclu-
sion test for five ASEAN countries. Second, we find a complementary relationship
between energy and human capital that is robust in various samples, which suggests
that human capital does not only drive the economic growth directly but also through
its indirect impact on reinforcing the positive impact of energy on the economy. Third,
bootstrapped panel causality test results suggest a unidirectional causal link from GDP
to energy in the panels of energy-importing countries, middle-income countries, and
regions in Asia Pacific, Europe and Middle East, and Africa. In energy-exporting,
high-income and American panel countries, the feedback hypothesis is supported.
The different conclusions of causality relationships confirm the relevance of examin-
ing the energy-growth nexus from these three perspectives. Based on these findings, we
recommend energy conservation policies together with well-designed human capital
policies for energy-importing countries and less-developed countries so as to reduce
their economic reliance on the energy use and improve the productivity contributions
1 It would be interesting to see whether the results differ when the energy importers/exporters are further
split into different income groups or geographic regions. However, due to the small-sample size issue in
further breakdown, the tests and estimations cannot be meaningfully carried out.
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Z. Fang, J. Yu
of energy and human capital, while for other countries, more focus should be placed
on the human capital policies.
The remainder of this study is organized as follows. Section 2 briefly reviews the
development of the energy-growth nexus literature; Sect. 3 describes the data, followed
by econometric methods and results discussion in Sect. 4. Section 5 concludes with
policy implications.
2 Literature review
This section does not intend to provide a complete review of existing energy-growth
nexus studies; Ozturk (2010) and Payne (2010) have done a good job in conduct-
ing a comprehensive and thorough survey of these studies. Here we would like to
straightforwardly point out contributions of our study after a brief overview.
It is well known that the energy-growth relationship has ignited great attention since
the seminal work of Kraft and Kraft (1978) who have examined the US data. In the
literature, there are four well-established hypotheses regarding the causal relationship
between energy consumption and GDP. They are:
(1) The growth hypothesis: If energy Granger causes GDP, reducing energy con-
sumption will have deleterious effects on economic growth and employment.
The underlying assumption of this hypothesis is that energy is a factor input of
production and a complement to capital and labor.
(2) The conservation hypothesis: If GDP is found to Granger-cause energy, energy
conservation policies can be implemented without causing side effects on econ-
omy.
(3) The feedback hypothesis: If there is a bidirectional relationship between energy
and GDP, energy policies will have an impact on growth and changes in economic
growth will likewise affect energy consumption.
(4) The neutrality hypothesis: if there is no causal link between energy and GDP,
energy and economic development policies should be considered separately.
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The role of human capital in energy-growth nexus: an…
Payne (2010) provides more discussions on and a detailed list of empirical studies
using various methodologies.
Recently, scholars have shifted their focus from time series analysis to panel data
due to the increased power and good size properties of panel techniques. Panel unit
root, panel cointegration, and panel causality tests that allow for cross-sectional depen-
dence, heterogeneity, and nonlinearity are undergoing fast development (Pedroni 1999;
Pesaran 2007; Westerlund 2006, 2007; Kónya 2006; Emirmahmutoglu and Kose 2011;
Dumitrescu and Hurlin 2012). Empirical studies applying these recent advanced tech-
niques also follow closely (Emirmahmutoglu et al. 2016; Fang and Chang 2016; Fang
and Chen 2017; Chen and Fang 2018).
This study belongs to the latest strand of research that uses the most recent panel
techniques. We aim to investigate the energy-growth causal link in a global world and
meanwhile take into consideration the role of human capital. The literature that has
examined the international evidence includes Chontanawat et al. (2008), Apergis and
Payne (2012) and Apergis and Tang (2013). Using a consistent data set and method-
ology, Chontanawat et al. (2008) examined 108 countries and found more evidence
of energy causing growth in the developed OECD countries compared to the devel-
oping nonOECD countries. A similar result is observed by Apergis and Tang (2013)
who examined whether the energy-led growth hypothesis is valid in 85 countries.
Based on their analysis, they concluded that the causality results are sensitive to the
model specification and stages of economic development, and energy conservation
policies implemented in low-income countries are more likely to be successful with-
out retarding the economic growth. However, in another study, Apergis and Payne
(2012) studied data from 80 countries over the period of 1990–2007 and found a
bidirectional relationship between energy (both renewable and non-renewable) and
economic growth using the panel cointegration test of Pedroni (1999) and the panel
error correction model. This study also examines the international evidence; but dif-
ferent from the above studies, we not only look at the relevance of stages of economic
development, but also discuss whether the findings are consistent within the same
continent or energy-endowment countries.
Another strand of the literature that is related to this study is those which have simul-
taneously considered human capital and energy as the input factors of production. As
noted earlier, human capital is a crucial driver of economic growth and should not be
ignored in the supply approach. Recent research by Pablo-Romero and Sánchez-Braza
(2015) and Fang and Chang (2016) have noticed the gap in the literature and attempted
to explore the impact of incorporating human capital in the analysis. Pablo-Romero
and Sánchez-Braza (2015) focused on estimating output elasticities with respect to the
factor inputs using data from 38 countries for the period of 1995–2007. By estimating
the coefficients of the interaction term of energy and human capital using the general-
ized least squares, they found a substitutional relationship between energy and human
capital. The human capital indicator they use is the percentage of hours worked by
people with a medium and high education level. Fang and Chang (2016), on the other
hand, use the human capital index constructed by Feenstra et al. (2015) in the Penn
World Table directly. This measure of human capital is more reliable as it considers
not only the education levels, but also different rates of returns to education across
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Z. Fang, J. Yu
countries.2 Besides estimating the output elasticity, they also examined the causal
relationship between energy and GDP and found a unidirectional link from GDP to
energy in the Asia Pacific countries. However, they did not explicitly discuss how
human capital may affect the energy in terms of the size of contribution or their causal
relationships with GDP. This study extends their research of Asia Pacific countries
to a global sample and at the same time addresses both the causation and elasticity
questions. As noted by Apergis and Tang (2013), the causal direction is important but
the magnitude of effects is similarly important to determine whether energy policies
have positive or negative impacts on economy.
3 Data description
This study uses macroeconomic data from the Penn World Table version 9.0 and
collects the primary energy consumption data from the British Petroleum’s 2016 Sta-
tistical Review of World Energy. The Penn World Table version 9.0 contains rich
information of input, output, trade, and productivity of 182 countries over the period
of 1950–2014. Human capital index is included since the version 8.0, which was
released in 2013.3 The British Petroleum’s Statistical Review of World Energy report
publishes energy data annually, including production and consumption of oil, gas,
coal, and renewable for a wide range of countries and a long period which dates back
to 1965. The variables of interest in this study are per capita real GDP, per capita
physical capital, per capita human capital, and per capita energy consumption in nat-
ural logarithm terms. The sample contains 56 countries from 1970 to 2014 where
data from both sources are available. In total, these countries contribute to 91% of
the world gross domestic growth and 88% of the world energy consumption in 2014
(World Development Indicators 2016).
Besides conducting analysis using a world sample, we are also interested to see
whether the results vary by energy trade status, stages of economic development, and
regions. Mahadevan and Asafu-Adjaye (2007) studied the causal relationship between
energy consumption and economic growth using data from 20 energy importers and
exporters for 1971–2002 and found the feedback effect for energy exporters and
mixed effects for energy importers. Specifically, in their study, the growth effect is
observed for most developing energy-importing countries, while for developed energy-
importing countries, the feedback effect is identified. To reexamine the energy-growth
nexus in a global context using a panel method, we group the countries by the three cat-
egories. In our sample, there are 36 net energy-importing and 20 net energy-exporting
countries; 20 middle-income and 36 high-income countries; and 21 European, 15 Asia
Pacific, 11 American, and 9 Middle East and African countries.4 The list of countries
2 For more details on the human capital index, refer to Feenstra et al. (2015) and Fang (2016).
3 The human capital index is constructed based on the assumptions that earlier years’ education has a higher
rate of return than later years’ education (Fang 2016). The findings of this study would be more convincing
if different measures of human capital index are applied. Thank the referee for pointing this out.
4 The group of countries is based on the 2013 World Development Indicators, World Bank. Due to the small
N issue, some geographic regions are combined so that we group the countries into four regions: Europe,
Asia Pacific, America, and Middle East and Africa.
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The role of human capital in energy-growth nexus: an…
Table 2 Cumulative annual growth rates of per capita variables by groups of countries
and categorization by energy trade status, income level, and region can be found in
Table 9 of the “Appendix.”
Table 1 presents the descriptive statistics of the variables. The cumulative annual
growth rates in the full sample as well as the various subsamples are shown in Table 2.
It is interesting to see that energy use grows at a much faster rate in the energy-
exporting countries than that in the energy-importing countries. The middle-income
countries see a faster growth of factor inputs than the high-income countries; therefore,
their economy grows at an average rate of 3.38% compared to that of 1.91% for the
high-income countries, which seems to suggest that the less-developed countries are
catching up with the developed countries. Examining the data by geographic locations,
we observe that the physical capital in Asia Pacific countries increases rapidly, while
the human capital investment seems to be led by Middle East and African countries.
Energy use in these two regions also grows much faster than the rest of the world. As
a result, Asia Pacific countries rank first in terms of the GDP growth rate. However,
the factor inputs seem to be not efficiently translated to economic growth in Middle
East and African countries.
To examine the link between economic growth and energy consumption, we draw
the growth rate of per capita GDP and per capita energy consumption of the sample
countries over the period of study in Fig. 1. We can see a co-movement of the two
series, suggesting a close link between the two variables.
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Z. Fang, J. Yu
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
Per capita GDP growth rate Per capita energy growth rate
Fig. 1 Growth rate of per capita GDP and energy consumption over years
Since human capital is an important driver to economic growth (Romer 1990; Barro
1991) and energy also plays a crucial role in the production process (Stern 2000;
Ghali and El-Sakka 2004), we employ the following modified aggregate production
function:
where GDP is aggregate output, K, L, HC, and Energy denote the factor inputs of
physical capital, labor, human capital, and energy, respectively. Assuming a Cobb—
Douglas function form and constant returns to scale, after dividing both sides by L
and applying a logarithmic transformation, we get5 :
5 Following Shahbaz et al. (2013) and Chen and Fang (2018), we assume constant returns to scale and use
the per capita terms in the analysis. The analysis based on the per capita variables is also seen in many other
studies (Yoo and Lee 2010; Payne 2010).
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The role of human capital in energy-growth nexus: an…
1
.5
2.1
log_energy1p
log_energy1p
0
2.05
-.5
2
-1
1.95
-1.5
.2 .3 .4 .5 .6 -.6 -.4 -.2 0 .2 .4
log_hc1p log_hc1p
.9
log_energy1p
log_energy1p
.8
.7
.6
.5
where LnGDP is the natural logarithm of aggregate output, and LnK , LnHC, and
LnEnergy are the natural logarithm of physical capital, human capital, and energy,
respectively. All variables are now in per capita terms. The coefficients β1 , β2 ,, and β3
thus measure the per capita output elasticity with respect to various per capita factor
inputs.
Conceptually, human capital can be associated with energy in many ways (Fang and
Wolski 2016). On the one hand, a high level of human capital may be linked to wide
application of energy-efficient technologies that are either introduced from overseas
or independently developed domestically. On the other hand, economic activities may
change with the development of human capital, hence requiring different levels of
energy intensity. To further examine how energy elasticity will change with different
stages of human capital development, following Fang et al. (2017), we incorporate the
interaction term of human capital and energy use as follows:
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Z. Fang, J. Yu
ate econometric methods are selected to examine the magnitude of output elasticities
with respect to various factor inputs as well as the relationship between human capital
and energy use. In the end, the panel causality tests are conducted to study the exis-
tence and direction of a causal relationship between energy and economic growth. All
the analysis is performed for both the full sample and the various subsamples with the
purpose to obtain more insights on the energy-growth nexus.
We first examine whether the panel data are stationary using panel unit root tests.
There are two generations of panel unit root tests, and the difference is whether the
cross-sectional dependence is accounted for (see, for example, Im et al. 2003 and
Levin et al. 2002 for the first-generation test and Smith et al. 2004 and Pesaran 2007
for the second-generation test). To decide which generation of tests is appropriate,
we first check whether the panel data are independent across units. Frees’ (1995)
Q-statistic, Friedman’s (1937) Chi–square-distributed statistic, and Pesaran’s (2004)
cross-sectional dependence (CD) test are employed to test the null hypothesis of inde-
pendence across sections. These tests are appropriate in data with large N and fixed
T; which is the case in our sample covering 45 countries. As expected, the results of
Table 3 reject the null hypothesis and suggest interdependence across countries. Sep-
arating the countries by energy trade status, economic development, and region, we
observe consistent findings of cross-sectional dependence.7 The trend of globalization
7 One exception is the Pesaran’s CD test result for the Asia Pacific countries, which may be caused by the
small N problem. The other two tests still support the interdependence.
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The role of human capital in energy-growth nexus: an…
and enhanced regional cooperation in both economic and political affairs make the
results no surprising.
Because of the presence of cross-sectional dependence across countries, we per-
form the second-generation panel unit root tests. Pesaran’s (2007) cross-sectionally
augmented Dickey-Fuller (CADF) regression and cross-sectionally augmented IPS
(CIPS) test are applied, and the results of the test statistics at levels and first differ-
ences of variables are shown in Table 4. We can see that the variables at levels have
unit roots and are stationary at first differences.8
The cointegration is tested using two of Pedroni’s (1999, 2004) proposed statistics
for the panel data, the group ADP and the panel ADF statistics; as Pedroni (2004)
showed that for T smaller than 100, these two tests have high power and small-size
distortion. Defactored variables are used in the presence of cross-sectional dependence
(Costantini and Destefanis 2009; Nasreen and Anwar 2014). Table 5 presents the test
statistics and associated p values for different samples of countries. We can see that the
null hypothesis of no cointegration is rejected at the conventional significance levels
for most of the samples. Only in the samples of energy-exporting countries and Middle
East and African countries, there seems to be no evidence of a long-run cointegrating
relationship among the four variables. In the next subsection to estimate the output
coefficients, we will keep these two samples but the results need to be explained with
caution.
Last, we also examine whether the slopes are homogeneous across units by per-
forming Pesaran and Yamagata’s (2008) approach. Pesaran and Yamagata’s (2008)
test is a modification of Swamy’s (1970) dispersion statistic for a panel with a large
√
˜ N N −1
N, i.e., √ S̃−k , where k is the number of exogenous regressors and S̃ is a
2k
modification of Swamy’s (1970) dispersion statistic. After the mean and variance bias
adjustment, ˜ adj is shown to have good size and power properties for all combinations
of N and T when the regressors are exogenous. Table 6 reports both statistics in the
full sample as well as the various subsamples. Results of Table 6 suggest strongly that
these are heterogeneous panels.
Before examining the Granger causal relationship between energy and economic
growth, we first estimate the coefficients in the augmented neoclassical production
function using a continuously updated fully modified (Cup-FM) regression method
proposed by Bai et al. (2009) because it allows for cross-sectional dependence.9 This
is reflected in the error term which is assumed to follow a factor model. The Cup-FM
estimator is obtained by repeatedly estimating the covariance matrix, loading, and the
parameters until convergence. Bai and Kao (2006) showed that the Cup-FM estimator
has good small-sample properties based on Monte Carlo simulations.
8 One exception is the LnK for the Asia Pacific sample which are not stationary at the significance level
of 10% even after the first difference. Since the null hypothesis of unit roots can be rejected at a larger
significance level, we continue the analysis for Asia Pacific countries as that for other subsamples.
9 While FMOLS and DOLS are popular in estimating the dynamic panel regressions, Cup-FM approach
is selected due to the cross-sectional dependence in the data.
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Z. Fang, J. Yu
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The role of human capital in energy-growth nexus: an…
Table 4 continued
As noted earlier, we also introduce the interaction term LnEnergy ∗ LnHC in the
model specification to explore how human capital affects the role of energy in economic
development. The parameter estimates of both specifications with and without the
interaction term from the full sample and various subsamples are presented in Table 7.
Results from the first specification suggest that all the three factor inputs contribute to
the economic growth positively and significantly. In the full sample, a 1% increase in
physical capital, human capital, and energy will lead to an increase in 0.36, 0.29, and
0.28% of GDP, respectively. This indicates an equally important position of energy in
the economic growth as physical and human capital (Dieck-Assad and Peralta 2013).
More interestingly, it is observed that the sum of the three coefficient estimates is
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Since the panel is cross-sectionally dependent and heterogeneous, we choose the boot-
strap panel Granger non-causality test proposed by Emirmahmutoglu and Kose (2011),
a method also used by Cowan et al. (2014) and Chang et al. (2014, 2015) to examine
10 In the sample of Middle East and African countries, the results are not reliable because the cointegration
test does not support the presence of a cointegrating relationship.
11 Note that this increasing/decreasing returns to scale are on per capita terms.
12 This is, however, in contrast with findings in Pablo-Romero and Sánchez-Braza (2015) who used the
GMM to estimate coefficients for a panel sample of 38 countries over 13 years and found a weak substitution
relationship between the two.
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The role of human capital in energy-growth nexus: an…
the causal link between energy and economic growth. To test the causality from x to
i +d maxi i +d maxi
y in the specification,yi,t αi + kj1 βi j xi,t− j + kj1 γi j yi,t− j + eit , the
steps are as follows:
(1) Identify the maximal order of integration of the set of variables for each unit i,
d maxi , and determine the lag length ki of the equation using either Schwarz or
Akaike information criteria.
(2) Re-estimate the equation under the assumption that βi j 0 and obtain the resid-
uals êi,t .
T
(3) Center the residuals by ẽi,t êi,t − (T − k − d − 2)−1 tk+d+2 êi,t where
k max(ki ) and d max(d maxi ), and sample a full column with replacement
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Z. Fang, J. Yu
from the centered residual matrix ẽi,t N ×T to form the bootstrapped residual
∗
matrix ẽi,t .
N ×T
(4) Generate the bootstrap sample of y, and estimate the equation with bootstrapped
y to get the individual Wald statistics. The individual p value of the Wald statistic
is therefore used to test the non-causality null hypothesis
N for each unit I, and the
Fisher test statistic which is calculated by λ −2 i1 Ln( pi ) is used for the
panel non-causality null hypothesis.
(5) Steps (3) and (4) are repeated many times to obtain the bootstrap critical values.
Besides the advantages of allowing for cross-sectional dependence and heterogene-
ity, this approach avoids the pretest bias (Emirmahmutoglu et al. 2016).13
The Fisher test statistics and the bootstrapped critical values are reported in
Table 8. We find evidence of the Granger causal relationship running from economic
growth to energy consumption in all different panels. However, conclusions regard-
ing the growth hypothesis vary across panels. Findings on this direction of causality
are more crucial because it literally determines the policy implications on energy
conservation.
From Table 8, we do not observe energy Granger causing economic growth in
the energy-importing countries and middle-income countries. This justifies the adop-
tion of energy conservation policies in these countries, as economic growth will not
be negatively affected. Furthermore, when these policies are well coordinated with
policies enhancing the specific human capital, the growth-driving force from energy
consumption will be reinforced. Over time, it could reduce their reliance on energy
use and ensure energy security and sustainability.
As mentioned earlier, countries with different energy endowments may well exhibit
different dynamic relationships between energy and economic growth. Indeed, though
energy does not Granger-cause economic growth in the energy-importing countries,
this direction of Granger causality is found in the energy-exporting countries. The
feedback effect is also supported by Mahadevan and Asafu-Adjaye (2007) for net
energy exporters. Nevertheless, this finding is in contrast with results in Al-Iriani
(2006), Mehrara (2007) and Damette and Seghir (2013) who examined the causal link
between energy use and economic growth in the energy-exporting countries and found
evidence of only unidirectional causality from economic growth to energy use. Based
on our findings here, we will suggest more policy considerations on physical and
human capital investment rather than reducing energy consumption in these countries.
For the high-income countries, energy use is also found to Granger-cause economic
growth. The energy-led growth is also found by Apergis and Tang (2013) for high-
income countries and Chontanawat et al. (2008) for developed countries. As they
recommended, policymakers in high-income countries should provide support to R&D
on clean and green energy and technologies rather than focus on reducing energy
consumption.
Across regions, the growth hypothesis is only supported in American countries. The
causality running from energy to GDP is evidenced by Apergis and Payne (2009b)
for six Central America countries. The policy implication is that energy policies need
13 Other panel causality tests allowing for heterogeneous panels include Dumitrescu and Hurlin (2012)
and Kónya (2006).
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The role of human capital in energy-growth nexus: an…
Table 8 Emirmahmutoglu and Kose (2011) panel Granger causality test results
to be designed with more caution and maybe more financial and institutional support
can be provided in the investment of physical and human capital at the moment. In
Asia Pacific, European and Middle East and African countries, since there is only
unidirectional Granger causation running from GDP to energy use found in this study,
energy conservation policies are likely to be implemented without causing slower
economic growth. Similar findings for the Asia Pacific panel are observed by Noor and
Siddiqi (2010) and Fang and Chang (2016), but others (Chen et al. 2007; Nasreen and
Anwar 2014; Rezitis and Ahammad 2015) support the feedback hypothesis for various
panels of Asia Pacific countries. Our result for Middle East and African countries is
consistent with Al-Iriani (2006) who supports the conservation hypothesis for Gulf
Cooperation Council countries.
This study examines the Granger causal relationship between energy and economic
growth and the role of human capital in the energy-growth relationship using data
from 56 countries over a period of 1970–2014. It contributes to the existing literature
in at least three ways. First, distinct from most of the previous studies, we use a multi-
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Z. Fang, J. Yu
variate framework which includes not only physical capital, energy, and GDP but also
human capital, a factor that has been largely ignored in the past. By incorporating the
interaction term of energy and human capital in the energy-augmented neoclassical
production function, this study also explicitly discusses how human capital affects the
energy effect on output. Second, we try to reconcile the findings in the existing liter-
ature from three angles. We do not only investigate the global panel, but also conduct
the analysis for various sub-panels grouped by energy trade status, stages of economic
development, and geophysical locations. This has been proved to be crucial as dif-
ferent conclusions on the causality and policy implications are obtained for various
groupings. Third, the advanced econometric methods used in this study are another
merit. Taking into consideration the fact that there is cross-sectional dependence in
the heterogeneous panels, continuously updated fully modified estimator proposed by
Bai et al. (2009) is used for the parameter estimation in the panel framework, and the
bootstrapped panel Granger causality method (Emirmahmutoglu and Kose 2011) is
employed for the causality test. These methods lend more credit to conclusions in this
study.
Through the analysis, we confirm that energy is an important and indispensable
factor of input to economic growth. It has a positive and significant effect on GDP
and the output elasticity with respect to energy ranges between 0.1 and 0.5 in various
samples. Energy is also found to be a complement to human capital. As the develop-
ment of human capital, the growth-driving effect of energy is enhanced. This result is
robust across various samples of countries, and it has important policy implications. It
suggests that energy efficiency policies should not be made independently within the
spectrum of energy, and instead, the synergies between energy use and human capital
(in terms of education, R&D, and technological development) should be emphasized.
Subsequently, using the bootstrapped panel causality test that considers cross-
sectional dependence and avoids the pretest biasness, we find the causal relationship
running from economic growth to energy consumption for all samples; but regarding
the causal direction from energy to GDP that is more crucial in deciding the appro-
priateness of energy conservation policies, mixed results are observed in different
samples. Specifically, energy Granger causing economic growth is found in energy-
exporting countries rather than energy-importing countries, high-income rather than
middle-income countries, and American countries rather than rest of the world. As a
result, we think energy policies that reduce the energy consumption are more feasible
in the latter set of countries. This will not only have little or no side effect on the
economy, but more importantly reduce their reliance on energy and therefore ensure
more sustainable growth and secure energy supply. This, however, does not mean that
human capital policies are not important in energy-importing, middle-income coun-
tries, and the world out of America. No matter which energy policies are implemented
in a country, the human capital development policies especially those related with
the clean and renewable energy will definitely be beneficial to both the economic
development and the environment in the long run. Lastly, policy makers should coop-
erate across regions and take multilateral efforts to promote energy efficiency and
development of renewable energy and human capital.
123
The role of human capital in energy-growth nexus: an…
Acknowledgements We are grateful for the helpful comments provided by the editor professor Robert Kunst
and the anonymous referee. Jiang Yu gratefully acknowledges financial support from the MOE Project of
Key Research Institute of Humanities and Social Sciences (Grant No. 16JJD790044), and National Social
Sciences Foundation Project (Grant No. 17BJY219).
Appendix
See Table 9.
123
Z. Fang, J. Yu
Table 9 continued
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