The relationship between energy consumption and economic growth in Vietnam

Abstract

Energy plays a vital role for the economic growth of a country, especially when a country is in process of hastening its economy into the industrialization stage like Vietnam. The link between economic growth and energy consumption has been widely studied in economic literature. So far, however, there has been little or no discussion about the causal relationship between GDP and energy consumption for Vietnam. This study investigates the relationship between per capita GDP (PCGDP) and per capita energy consumption (PCEC) during the 1984 – 2010 period. In order to find out the causal nexus between them, the Johansen co-integration tests and vector error correction models (VECM) for Granger causality tests have been applied. Results show that the PCGDP and PCEC are co-integrated and that there is a long-run (defined as longer than 1 year) unidirectional causality running from energy consumption to GDP for Vietnam in the sample period and a short-run (defined as 1 year or less) causality on the contrary, running from GDP to energy consumption but not vice versa. Therefore, based on the results, an important policy implies that an economy is energy dependent

energy is a stimulus to growth, hence any constraints put on energy consumption to help reduce emissions or any shock to energy supply will have an effect on economic growth. Furthermore, policymakers are suggesting taking not only short-term, but also long-term perspectives into consideration when designing energy conservation policies. At the moment, it is imperative to reduce energy intensity which means a more efficient use of energy and a reduction in greenhouse gas emissions using alternative energy options.

Key words: Energy consumption, economic growth, energy efficiency, co-integration test, Granger causality, Vietnam. Student Number: 2010-22827