This study examines the relationship between energy consumption and economic growth for twenty-three Latin American and Caribbean countries over the period 1980–2004. Given the relatively short span of the time series data, a panel cointegration and panel vector error correction model was employed to infer the causal relationship. The results indicate that a longrun relationship exists between real GDP, energy consumption, capital and labour. Specifically, a 1 percent increase in energy consumption increases output by 0.083 percent; a 1 percent increase in capital increases output by 0.078 percent; and a 1 percent increase in labour force increases output by 0.586 percent. The short run results also indicate the importance of energy consumption to economic growth and vice-versa, supporting the feedback hypothesis which asserts that energy policies oriented toward improvements in energy consumption efficiency would not adversely affect real GDP. We argue that policies for energy efficiency should be long-term in nature and should encourage proper market and pricing signals. However, while it is difficult to be definitive about energy policy, it must be acknowledged that such a discussion needs a holistic setting to be more effective and not just based on the empirical evidence on causality between energy consumption and economic growth.
Energy Consumption & Economic Growth in L.A. & the Cbean_ A Panel Cointegration Approach.pdf