Examining the linkage between human capital and energy consumption: cross‐country evidence

• Published date: 01 March 2020
• Author: Bhushan Praveen Jangam,Badri Narayan Rath,Vaseem Akram
• DOI: http://doi.org/10.1111/opec.12167
• Date: 01 March 2020

Examining the linkage between human

capital and energy consumption:

cross-country evidence

Vaseem Akram, Bhushan Praveen Jangam and Badri Narayan Rath

Department of Liberal Arts, Indian Institute of Technology Hyderabad, Kandi, Sangareddy, Telangana

502285, India. Email: akramvaseem001@gmail.com

Abstract

Though voluminous empirical studies examine the linkage between energy consumption (EC) and

economic growth, the impact of human capital on EC is scarce. This paper investigates this

research issue by using annual data of 73 countries over the period 1990–2014. Furthermore, we

classify 73 countries based on income (developed, developing and emerging economies) and

regions (Asia, Africa, Europe and Latin America). The empirical results indicate that human

capital negatively affects EC. This implies that EC can be lowered by improving human capital,

which ultimately can help in energy conservation and environmental protection. Policies

promoting substitutability between energy inputs and human capital, and structural policies like

improving economic efficiency and improving human capital through educational levels can help

economies in achieving greater sustainable growth with low EC.

1. Introduction

Energy consumption (EC) plays a vital role in the progress of different sectors of the

economy. EC patterns are critical to understand its catalytic role in economic growth,

development, energy security and climate change (Odgaard and Delman, 2014; Li and

Lin, 2016). Various empirical studies have found that an improved EC drives economic

growth (Kraft and Kraft, 1978; Stern, 2000; Soytas et al., 2001; Paul and Bhattacharya,

2004; Wolde-Rufael, 2004; Lee, 2005; Ang, 2007; Wang et al, 2011; Shahbaz et al,

2013). In the literature, the majority of the studies have analysed the causal relationships

between EC, real income and economic growth (Masih and Masih, 1996; Jumbe, 2004).

The empirical findings of these studies were found to be mixed. According to Beaudreau

(1995), EC plays an important role in intermediate input without which production

process comes to a halt. The neoclassical growth model envisages energy as an

intermediate input given land, labour and capital. The environmentalists view energy as

a significant factor for net exports and income, which further impacts EC (Cleveland

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et al., 2000). According to Pokrovski (2003), the energy should be listed with the

fundamental production factor in line with labour and capital. Pokrovski (2003) and

Beaudreau (1995) point out that there exists a strong correlation between output and

energy inputs. The link between EC and output is investigated by Kraft and Kraft (1978).

They found a constant and unchanging relationship between gross nati onal product and

EC. A group of studies have found no causal association between income and EC

(Akarca and Long, 1980; Yu and Hwang, 1984; Yu and Choi, 1985; Erol and Yu, 1987).

On the other hand, few studies have found a significant relationship between EC and

employment (see, Erol and Yu, 1987, 1989; Yu et al., 1988; Yu and Jin, 1992; Glasure

and Lee, 1997).

Broadly, there are three strands of literature which link human capital (HC) with EC.

First, EC increases with income brought by a rise in HC (Benos and Zotou, 2014).

Second, the EC can fall over a period due to HC effect, where educated households

prefer energy-efficient appliances or technology (Benos and Zotou, 2014). Finally, the

EC is affected by the substitutability or complementarity between energy inputs,

physical and HC (Salim and Rafiq, 2012; Pablo-Romero and S

anchez-Braza, 2015).

An improvement in HC plays an important role in sustainable economic growth.

Pachauri and Jiang (2008) have found that a well-educated household chooses energy-

efficient appliances. D

emurger and Fournier (2011) found that educated rural households

often move away from less energy-efficient firewood to commercial fuel sources.

Broadstock et al. (2016) in their study have pointed out that with improvements in

educational attainments, households in China prefer appliances that are energy-efficient.

He and Reiner (2016) and Khanna et al. (2016) have found that EC increases with

an increase in income. The other study pointed out that the EC patterns are determined

by the substitutability of labour and energy inputs in the production process (Ma et al.,

2012). Yang et al. (2016) have found empirically, using trans-log production function,

that there exists substitution among energy inputs and HC. Salim et al. (2017) mentioned

that the accumulation of HC allows households to adopt energy-efficient appliances

resulting in a reduction of EC over a period (Li and Lin, 2016). If complementarity

between energy inputs and HC exists in the production process, then improvements in

HC will result in an increase in EC for a given level of output. In contrast, EC will fall if

energy inputs and HC are substitutes (Pablo-Romero and S

anchez-Braza, 2015). Studies

have mostly considered educational attainment as a proxy for HC in analysing the

relationship between EC and economic growth (Huang et al., 2008; Coers and Sanders,

2013). The increased EC across the countries motivates this study to examine the role of

HC on EC.

Our paper adds to the existing literature on three counts. First, few studies have

analysed population growth, exports, urbanisation and infrastructure are the key factors

of EC (Lenzen et al., 2014; Omri and Nguyen, 2014). The study by Salim et al. (2017)

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