The Energy-GDP Nexus in EU Countries

Abstract

The neutrality hypothesis between the energy consumption and the economic activity is examined for the panel of EU-27 countries and selected sub-panels. The causality runs from the energy consumption to the GDP for the EU-27, but the causality from the GDP to the energy consumption cannot be confirmed. The evidence therefore speaks for the rejection of the neutrality hypothesis in favor of the growth hypothesis. These results differ between the original (EU-15) and the new EU member countries (EU-12). In the original member countries, there is a tendency to increase the economic growth with the energy consumption savings. In the new member countries a negative impact of the energy consumption savings on the economic growth is found. Examining the sectoral energy consumption, the main drivers of the causality in the relationship are identified as the residential sector, industry and services. The residential energy consumption savings appear to increase the economic growth in both original and new member countries. But the role of the energy consumption savings in the industrial and services sectors differ across the groups. For the industrial sector, the energy consumption savings increase economic growth in the original member countries. In the new member countries, energy conservation might hinder the economic growth. In services, the energy consumption does not seem to have an impact in the original member countries, while in the new member countries the savings in energy consumption seem to degrade the economic growth. the energy conservation policies might be beneficial for the more developed countries of EU-15, but not for the less developed countries of EU-12.