Decomposing Scale and Technique Effects of Economic Growth on Energy Consumption: Fresh Evidence in Developing Economies

Abstract

This study contributes by investigating the association between scale, technique and composition effects on energy consumption by considering financial development, oil prices and globalization as potential determinants of economic growth and energy demand. We have applied recent cointegration considering cross-sectional dependence and structural breaks introduced by Westerlund and Edgerton (2008). Furthermore, FMOLS, DOLS and Cup-FMOLS are applied to examine impact of scale effect, technique effect, composition effect, financial development, oil prices and economic globalization on energy consumption. The empirical results show that variables are cointegrated for long run relationship. Scale effect and technique effect are negatively and positively linked with energy consumption. Composition effect and economic globalization stimulate energy demand. Contrarily, financial development and oil prices decline energy consumption. This empirical analysis helps policy makers of developing economies in designing their comprehensive environmental policy for sustainable economic development in long-run.