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Qi, M.; Xu, J.; Amuji, N.; , . Energy Consumption, Economic Growth and Trade Openness. Encyclopedia. Available online: https://encyclopedia.pub/entry/22055 (accessed on 08 July 2024).
Qi M, Xu J, Amuji N,  . Energy Consumption, Economic Growth and Trade Openness. Encyclopedia. Available at: https://encyclopedia.pub/entry/22055. Accessed July 08, 2024.
Qi, Ming, Jing Xu, Nnenna Amuji,  . "Energy Consumption, Economic Growth and Trade Openness" Encyclopedia, https://encyclopedia.pub/entry/22055 (accessed July 08, 2024).
Qi, M., Xu, J., Amuji, N., & , . (2022, April 21). Energy Consumption, Economic Growth and Trade Openness. In Encyclopedia. https://encyclopedia.pub/entry/22055
Qi, Ming, et al. "Energy Consumption, Economic Growth and Trade Openness." Encyclopedia. Web. 21 April, 2022.
Energy Consumption, Economic Growth and Trade Openness
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This entry is adapted from the peer-reviewed paper 10.3390/su14063630

The positive impact of energy consumption on economic growth in West Africa has shown a significant lag effect, and energy consumption has a strong trade-dependent relationship to economic promotion. Trade opening and economic growth in West Africa are mutually reinforcing in the long run. Next, the role of foreign trade in boosting economic growth is more significant in countries with lower levels of economic development. Finally, when replacing the energy consumption indicator with CO2 emissions, the results remain robust. Considering the regional development differences, grouping countries by GDP per capita reveals that there exists a bilateral causal relationship between energy consumption and trade openness in the higher economic development group. The impact of trade openness on economic growth is more remarkable in countries with lower levels of economic development in West Africa.

energy consumption economic growth trade openness

1. The Relationship between Energy Consumption and Economic Growth

A large body of research has focused on the nexus between energy consumption and economic growth. The relationship between energy consumption and economic growth can be categorized into four hypotheses: the neutral hypothesis (no causality), the conservation hypothesis (one-way causality of economic growth on energy consumption), the growth hypothesis (one-way causality of energy consumption on economic growth) and the feedback hypothesis (existence of two-way causality) [1][2][3]. Some scholars have argued that energy consumption is necessary for economic growth because energy is a direct input in the production process [4][5][6][7][8]. Under this hypothesis, there is a unilateral Granger causal relationship between energy consumption and economic growth. It suggests that the national economy is dependent on energy. Insufficient energy supply will limit economic growth. A number of scholars have also concluded that there is not a causal relationship between energy consumption and economic growth, which implies that the country’s economy is not fully dependent on energy and policies focused on energy conservation will not harm the country’s economic growth [1]. Many scholars have found a bilateral relationship between energy consumption and economic growth. A significant increase in energy consumption will promote the growth of the whole economy, and a significant increase in economic growth will directly lead to a decrease in overall energy consumption [3]. Ozturk et al. investigated the relationship between energy consumption and economic growth in low- and middle-income economies. The results indicate that there is a bilateral relationship between energy consumption and GDP for low- and middle-income countries [9].
Some scholars have also investigated the case of the African region. The causal relationship between economic growth and energy and consumption in the African region has shown significant differences with other regions. Odhiambo used energy prices as an additional variable to determine the relationship between energy consumption and economic growth by considering whether energy prices cause changes in both energy consumption and economic growth [10]. Kahsai et al. divided sub-Saharan Africa into two groups, which are low-income and middle-income countries [11]. The results show that the hypothesis of neutrality persists in the short run for low-income countries, while there is a bilateral causal relationship between economic growth and energy consumption for both groups in the long run. Other researchers have investigated individual countries in Africa and find a unidirectional causal relationship between energy consumption and economic growth [6][7].

2. The Nexus between Energy Consumption and Trade Openness

Previous research has shown a significant negative relationship between energy consumption and international trade in different regions. They argued that the increase in the volume of trade greatly increases the need for clean and renewable energy consumption [12][13]. However, some studies on developing countries have shown that energy consumption positively affects trade openness in low-, middle-, and high-income developing countries. There is a bidirectional causal relationship between energy consumption and trade openness [14]. Sardorsky analyzed the case of eight South American countries and found a bilateral Granger causality between international trade and energy consumption. The long-run elasticity suggests that a 1 percent increase in exports per capita is associated with a 0.11 percent increase in energy consumption per capita [13]. Although the literature on the nexus between energy consumption and trade in West Africa is less investigated, current research has demonstrated a positive relationship between the two factors. Adeniyi and Adewuyi investigated the case of several countries in West Africa. The results showed that there exists a positive relationship between energy consumption and international trade in Ghana, Togo, Nigeria, and Senegal, but there is no correlation in Benin and Côte d’Ivoire. Further, country-level analysis showed that the impact of intra-West African trade on fossil fuel consumption in West African countries is significant and diverse [15]. A similar study by Najarzadeh et al. (2015) for 10 OPEC countries showed a statistically significant relationship between energy consumption and trade [16].
The investigation on the relationship among the variables of energy consumption, economic growth and trade openness have received a lot of attention from researchers in the last few years. However, most studies are based on time series analysis of individual countries and regions [17]. Some scholars have used Granger causality to test the feedback hypothesis among various factors such as economic growth and energy consumption, economic growth and trade, and energy consumption and trade in the short, medium and long term [18]. In most developed countries, the increase in trade promotes economic growth, which in turn increases imports, and the increase in energy consumption has a significant impact on economic growth. In Asia, a densely populated continent, increased energy consumption has a significant impact on trade openness and economic growth. Increased trade openness has had a positive impact on economic growth and energy consumption. The findings proved that the shift in energy consumption regulation policies was effective and that increased trade openness played an important role in the country’s development.
Despite the rich investigation on the relationship among energy consumption, economic growth and trade openness by scholars, there is still room for further research. In the case of Africa, energy consumption varies greatly across countries and regions due to geography, resource distribution, and political factors. A research from a regional perspective can directly reflect local development patterns.

3. The Nexus between Trade Openness and Economic Growth

The nexus between international trade and economic growth is of great interest to scholars. Bhattacharya and Bhattacharya (2016), Tahir and Azid (2018) argued that there is a bilateral and positive relationship between the foreign trade openness and economic growth, suggesting that international integration is a favorable strategy to facilitate economic growth in the long run [19][20]. In contrast, the short-run effects have shown a negative short-term adjustment, suggesting that trade openness may be more difficult for an economy undergoing short-term adjustment [21].
A large body of literature focused on Asian countries suggests a bilateral and positive relationship between economic growth and trade. Ray has found a two-way causal link between foreign exports and economic growth in India and central Asia [22]. Chinese research results have shown that there is a significant positive correlation between exports, imports and economic growth [23][24]. Similar studies on sub-Saharan Africa have shown that exports have a positive relationship with economic growth. However, imports have no significant effect on economic growth in the region. Abdullahi et al. (2016) investigated the case of West Africa and found that a one percent increase in the export variable would lead to a 5.11 percent increase in GDP growth [25]. On the other hand, the impact of imports on GDP growth was positive but insignificant, while foreign exchange had a negative impact on GDP growth. A similar survey in Nigeria showed that international trade has a significant positive impact on the development of Nigeria. Imports, exports and its trade openness all have a huge impact on the economy. This implies that any policy on trade openness will have a direct impact on the economies of countries [26]. Furthermore, a study on Nigeria attempted to fill the last knowledge gap on the relationship between trade openness and economic growth by incorporating institutional quality. The results showed that export trade has a significant positive effect on economic growth, while import and export trade has a positive or negative effect on economic growth. Furthermore, the negative long-run effect of import trade on economic growth in Nigeria decreases as the quality of institutions improves [27]. Some scholars have argued that there is a non-linear relationship between trade openness and economic growth in sub-Saharan Africa. The results showed that there is an inverted U-curve effect on the trade threshold, where the greater the trade openness below the threshold, the greater the impact on economic growth. If trade openness is above the threshold, the greater the trade openness, the smaller the impact of trade on economic growth [28]. In general, exports have a positive impact on economic growth in the long run, while imports produce different directions and sizes of changes in economic growth depending on the period and volume.

References

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  10. Odhiambo, N.M. Energy consumption, prices and economic growth in three SSA countries: A comparative study—ScienceDirect. Energy Policy 2010, 38, 2463–2469.
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