A dynamic panel study of energy consumption–economic growth nexus: evidence from the former Soviet Union countries

• Author: Dincer Dedeoglu,Ali Piskin
• Published date: 01 March 2014
• Date: 01 March 2014
• DOI: http://doi.org/10.1111/opec.12017

A dynamic panel study of energy

consumption–economic growth nexus:

evidence from the former Soviet

Union countries

Dincer Dedeoglu*† and Ali Piskin**

*Research Assistant, Department of Economics, Bahcesehir University, Ciragan Cad. Osmanpasa Mektebi

Sok. No:4-6 34353, Besiktas-Istanbul, Turkey.Email: ddedeoglu@hotmail.com

**Research Assistant, Department of Economics and Finance, Dogus University, Zeamet Sok., Acibadem

34722, Kadikoy-Istanbul, Turkey.Email: mrpiskin@hotmail.com

Abstract

This paper examines the relationship between energy consumption and real gross domestic product

(GDP) per capita for the 15 former SovietUnion countries during the period 1992–2009. These coun-

tries havebeen rarely investigated with regard to the related nexus in the literature despite the impor-

tant role of these countries in energy marketsas producers and consumers. Panel unit root tests, panel

cointegration tests and panel vector error correction model in a dynamic panel framework are

employed to infer the causal relationship. The empirical results show that there is a unidirectional

causalrelationship r unning from energyconsumption to the real GDP per capita in the long r un but not

in the short-run for the former Soviet Union countries and Commonwealth Independent States coun-

tries regardless Russia is included or excluded. However, wediscover a bidirectional relationship for

oil importer and natural gas importer countries. Therefore, the findings of this study support the

growth hypothesisfor the former subsegments and feedback hypothesis for the latter subsegments.

1. Introduction

There are a number of studies that investigate the causality relationship between energy

consumption and real GDP per capita. Researchers try to present the potential relationship

and suggest energy policies for policy makers through their studies. In this paper, weaim

to investigate the potential relationship between energy consumption and real GDP per

capita for the former Soviet Union (hereafter FSU) countries for the period 1992–2009.

This paper contributes to the existent literature on energy consumption–economic growth

nexus in several ways. Firstly, this is the pioneering study that investigates energy

consumption–economic growth nexus for the 15 FSU countries.1Secondly, we include

†Principal author.

75

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energy consumption as a whole rather than electric consumption, oil consumption or any

other. Thirdly, we use recent panel methods including panel unit root tests, panel

cointegration tests, panel vector error correction model rather than single equation

methods. Fourthly, we classify the countries by sevensubsegments to ensure homogeneity

in the panel and to present more accurate policies.

The rest of the study is as follows. Section 2 outlines of energy outlook of the coun-

tries. Section 3 introduces the literature and discusses the four hypotheses in the literature

on energy consumption and economic growth nexus. Section 4 describes our data, and

Section 5 explains methodology. Section 6 provides the results obtained. Section 7

concludes.

2. A brief energy outlook

After the collapse of the Soviet Union, 15 sovereign countries emergedwho have signifi-

cant energy reserves. These countries play an important role in world energy markets as

producers, consumers and transit centres. Tab le 1 shows the composition of energy pro-

duction and energy consumption in the FSU countries in 2009.

Russia is the major oil producer both in the region and in the world. Russia, Azerbai-

jan, Kazakhstan and Turkmenistan are net exporters of fossil fuel, whereas the rest is not.

Besides Russia is the major natural gas producer in the world. AlsoAzerbaijan, Kazakh-

stan, Turkmenistan and Uzbekistan are net exporters of natural gas. Oil and natural gas

exports of these countries have been substantially contributed to GDP growthand so their

primary energy intensities2have rapidly decreased since 1992. In terms of coal reserves,

Russia is the leading producer followed by Kazakhstan, Ukraine and Estonia. However,

the carbon intensity3of Estonia is relatively high due to the share of coal in its gross elec-

tricity production.

The source of electricity production depends on the availability of domestic resources

such as oil, natural gas, coal, hydropower, nuclear power and renewables as shown in

Table 1.According to the figures, these countries do not considerably use oil and renew-

able energy sources (excluding hydroelectricity) in electricity production. Tajikistan,

Kyrgyzstan and Georgia take advantage of their geographical features as they pro-

duce electricity by hydropower. This characteristic has caused a reduction in the carbon

intensities. The usage level of renewable energy sources is still low in FSU countries that

require an expansion (Apergis and Payne, 2010a). Finally, the nuclear power plants’ con-

tribution ranges from 74.11 per cent in Lithuania to 0.00 per cent in 11 countries of the

FSU.

Primary energy intensity and carbon intensity can aid us in interpreting energy fea-

tures of countries, because inequality in intensities across countries shows the variation in

energy consumption and carbon emissions per capita (Duro and Padilla, 2011). Figures 1

Dincer Dedeoglu and Ali Piskin76

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Tab le 1 Survey of energy production and consumption for the FSU countries, 2009*

Oil (thousand barrels per day)

Natural gas (billion

cubic feet)

Coal (thousand

short tons) Electricity

Production Consumption Production Consumption Production Consumption

Production

Consumption

(billion kWh)

Total

(billion

kWh)

Oil

(%)

Natural

gas (%)

Coal

(%)

Hydroelectric

(%)

Nuclea

r (%)

Renewable

(%)

Armenia 0 49 0 54.74 0 66.14 5.67 0 20.34 0 35.6 43.97 0.07 4.78

Azerbaijan 1012.25 130.15 576.59 367.17 0 0 18.86 2.63 85.11 0 12.23 0 0.01 14.49

Belarus 34.01 164 5.3 626.84 0 159.84 30.37 17.63 81.7 0 0.14 0 0.2 31.36

Estonia 7.6 29.68 0 23.06 16467.43 15253.78 8.77 0.51 1.23 91.38 0.36 0 5.79 7.97

Georgia 0.98 19 0.35 60.39 234.79 349.43 8.55 0.45 12.93 0 86.6 0 0 6.99

Kazakhstan 1540.41 241 388.47 304.42 111172.51 79123.91 78.71 3.23 13.13 74.89 8.73 0 0 71.58

Kyrgyzstan 0.95 15.48 0.54 23.15 663.59 1097.90 11.1 0 7.96 2.75 89.27 0 0 7.46

Latvia 0 38 0 55.09 0 139.99 5.56 0.07 36.03 0.03 62.07 0 1.77 6.48

Lithuania 5.73 73 0 96.41 0 277.34 14.64 5.01 14.34 0 2.89 74.11 1.77 11.45

Moldova 0 16.5 0 82 0 199.52 3.6 1.33 95.02 0 1.52 0 0 3.63

Russia 9933.71 2927.00 18890.27 13504.81 304228.01 204083.03 990.04 1.61 47.37 16.52 17.59 16.52 0.05 870.33

Tajikistan 0.22 37.51 1.34 8.02 218.26 233.69 16.12 0 2.02 0 97.97 0 0 13.46

Turkmenistan 198.15 93 1347.27 708.07 0 0 15.98 0 99.98 0 0.01 0 0 12.18

Ukraine 92.04 347 715.48 1559.51 60644.76 68774.31 173.48 0.52 8.1 36.55 6.82 47.95 0.02 147.39

Uzbekistan 70.89 139.92 2168.62 1631.84 4027.85 4207.52 49.9 2.07 75.14 4.08 18.69 0 0 45.42

* The shares of resources in electricity production is in per cent. Real GDP per capita measured in constant 2005 PPP international dollars. Data on oil, natural gas and coal were obtained from US

Energy InformationAdministration. Data on electricity were obtained from World Bank Indicators.

Energy consumption–economic growth nexus 77

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