Impact of Energy Use and Gross Capital Formation on Economic Growth. A Panel Data Analysis in 73 Countries Grouped by Income Level and Oil Production

Introduction: This paper examines the relationship between energy use (ENU) and gross capital formation (GCF) with the gross domestic product (GDP) growth rate in 73 countries. Countries are grouped according to the World Bank classification on income: high (30 countries), medium high (21 countries) and medium low (22 countries). Countries with a low income level are excluded due to insufficient data. The reason why the GCF is included is to study how it influences jointly with the ENU in the GDP growth since the GCF considers machinery and capital goods that require energy. Methods: Unit root and cointegration tests of panel data are performed, as well as estimates of fully modified ordinary least squares and dynamic ordinary least squares of data panel. Results: The empirical findings are that GDP growth is explained by ENU and GCF in the short and long run, except for the medium-high income group in which in the short run the ENU is not significant while the GCF is. Also, in all groups, in the long run, the GCF is explained by both GDP growth and ENU. It is highlighted that in all groups, in the short run, there is no causal relationship between ENU and GCF. Surprisingly, economies with high and low income have similar results. Finally, economic growth has an unidirectional relationship toward UEN and BCF, while in the long run there is no relation. In contrast, for non-oil-producing countries, in the short and long term, GDP growth has an bidirectional relationship with GCF. However, in the short run only the ENU is explained by economic growth. Conclusions: The various short and long-term relationships between ENU, GCF and economic growth that were empirically obtained provide substantial elements to energy policy designers of 73 countries.