Causality between GDP, Energy and Coal Consumption in India, 1970-2011: A Non-parametric Bootstrap Approach

Abstract

The aim of this paper is to examine the direction of causality between real GDP on the one hand and final energy and coal consumption on the other in India, for the period from 1970 to 2011. The methodology adopted is the non-parametric bootstrap procedure, which is used to construct the critical values for the hypothesis of causality. The results of the bootstrap tests show that for total energy consumption, there exists no causal relationship in either direction with GDP of India. However, if coal consumption is considered, we find evidence in support of unidirectional causality running from coal consumption to GDP. This clearly has important implications for the Indian economy. The most important implication is that curbing coal consumption in order to reduce carbon emissions would in turn have a limiting effect on economic growth. Our analysis contributes to the literature in three distinct ways. First, this is the first paper to use the bootstrap method to examine the growth-energy connection for the Indian economy. Second, we analyze data for the time period 1970 to 2011, thereby utilizing recently available data that has not been used by others. Finally, in contrast to the recently done studies, we adopt a disaggregated approach for the analysis of the growth-energy nexus by considering not only aggregate energy consumption, but coal consumption as well. Keywords: Non-parametric Bootstrap Simulations; energy consumption; coal consumption; Granger causality JEL Classifications: C15; C32; Q43