Relationship between coal consumption and economic growth for OECD and non-OECD countries

Abstract

This study uses panel cointegration tests to examine the relationship between coal consumption and economic growth for OECD and non-OECD countries. We formulate a hypothesis that developing countries have a more powerful relationship since coal is generally used in the early stage of economic development. To prove this hypothesis, we analyse 58 countries for the period 1971-2010 and those 58 countries into two groups: OECD and non-OECD. We use three-panel unit root tests for robustness of the test results. The results indicate that all panel data are non-stationary. Then, we apply two cointegration tests to confirm the long-run equilibrium between coal consumption and economic growth. One is based on an error correction model and the other on residuals. The cointegration test results indicate that coal consumption and economic growth have long-run equilibrium in OECD countries. In contrast, coal consumption and economic growth have no long-run relationship in non-OECD countries. In addition, we investigate the coal consumption of the iron and electricity generation sectors. The results are same as with the total coal consumption case. Consequently, only OECD countries have a long-run equilibrium relationship in coal consumption of the iron and electricity generation sectors.