Energy Consumption, Environmental Degradation and Economic Growth in Developing Countries

Abstract

The present study analyzes the impact of energy consumption and environmental degradation on economic growth in developing countries. Panel-ARDL Model is suitably proposed technique to estimate the long-run as well as short-run relationships due to mixed order of integration. The homogenous panel causality test is also used to find out the interrelationship among energy consumption and environmental degradation and macroeconomic variables. The results state that energy consumption has positive and statistically significant effect on growth in three panel LMICs, UMICs and in ASDCs except LICs where it has negative but insignificant effect on economic growth. The environmental degradation has negative and statistically significant influence on economic growth in all panels. Consequently the hypothesis of study that “economic growth improves with energy use and declines with environmental degradation” is fulfilled. The secondary objective of given study is to fulfill the hypothesis, ’the casual relationships exist between energy, environmental degradation and macroeconomic variables’’ On the whole, the feedback hypothesis of study ‘’the casual relationships exist between energy, environmental degradation and macroeconomic variables’’ is also fulfilled.