Energy and economic growth: Causality analysis using decomposed energy consumption

Abstract

To investigate a decoupling issue on economic growth and energy consumption, a new approach using decomposed time series of energy consumption is applied in this study. To capture the actual growth effect on energy consumption, an index decomposition analysis is performed first. From the decomposition results, the decomposed energy consumption data could be obtained. With those data, a causality analysis to figure out the relationship between economic growth and actual energy consumption is conducted. The results show that a bidirectional causal relationship was observed in the US, which could not be derived from the conventional approach. In other words, a hidden causal relationship between economic growth and actual energy consumption was revealed through the approach proposed in this paper. These efforts can help explain the coupling-decoupling controversies on energy and economic growth.