Panel evidence of the dynamics between energy consumption and trade openness in ASEAN and East Asia

Abstract

This paper investigated the dynamics between trade openness and energy consumption in five members of the Association of Southeast Asian Nations (ASEAN) and three East Asian countries from 1980 to 2014. Previous theoretical discussions and empirical findings pointed out that trade openness had ambiguous effects on energy consumption. A panel dataset involving energy consumption per capita, trade openness, real gross domestic product per capita, gross fixed capital formation per capita and foreign direct investment was estimated. The Lagrange multiplier (LM) cross-sectional dependence test confirms the existence of cross-sectional dependence among the cross-sectional units. Moreover, the Westerlund cointegration test showed that the variables were not cointegrated. Hence, the dynamics among the variables were explored using the panel vector autoregressive method. The results suggested that there is a unidirectional Granger causality from trade openness to energy consumption. Further, the impulse response functions implied that the effect of trade openness on energy consumption occurred via the dynamics between trade openness and gross capital formation per capita. Finally, the forecast error variance decomposition showed that the contribution of trade openness on energy consumption increased during the examined period.