Energy and economic growth in the USA

TLDR

The link between energy consumption and economic growth has been studied by biophysical and neoclassical economists, yet existing Granger‑causality tests cannot directly compare their explanatory power. This study investigates the causal relationship between GDP and energy use in the United States from 1947 to 1990. Using a multivariate vector autoregression of GDP, energy use, capital stock, and employment, the authors perform Granger causality tests among the variables. Results show that gross energy use does not Granger‑cause GDP, but final energy use adjusted for fuel composition does Granger‑cause GDP.

Abstract

This paper examines the causal relationship between GDP and energy use for the period 1947-90 in the USA. The relationship between energy use and economic growth has been examined by both biophysical and neoclassical economists. In particular, several studies have tested for the presence of a causal relationship (in the Granger sense) between energy use and economic growth. However, these tests do not allow a direct test of the relative explanatory powers of the neoclassical and biophysical models. A multivariate adaptation of the test-vector autoregression (VAR) does allow such a test. A VAR of GDP, energy use, capital stock and employment is estimated and Granger tests for causal relationships between the variables are carried out. Although there is no evidence that gross energy use Granger causes GDP, a measure of final energy use adjusted for changing fuel composition does Granger cause GDP.