Exploring the Dynamics of Energy Consumption and Economic Growth in South Asian Countries: A Panel Data Analysis

Abstract

Energy is pivotal for economies to function, providing the necessary inputs for manufacturing goods and services. It encompasses hydro, wind, geothermal, solar energy, nuclear power, and other nonrenewable and renewable energy sources. This study's goal is to investigate the relationship between economic growth and energy consumption in Asian nations (Pakistan, India, China, Sri Lanka, and Bangladesh) from 1998 to 2022, using secondary sources such as the World Development Indicator (WDI) and the International Energy Agency (IEA). The dependent variable, gross domestic product (GDP), is examined against the four independent variables gross capital formation, nonrenewable resources, renewable resources, and foreign direct investment. Various statistical methods including panel unit root, Granger causality test, panel least squares, and co-integration are employed. The estimated results of the panel least square model indicate that there is a moderate and significant correlation among variables. Non-renewable sources (0.0049) and REN (Renewable Energy sources) (0.0298) demonstrate weaker associations with the dependent variable. The coefficient for FDI (Foreign Direct Investment) is 0.677, which shows a positive relationship with the dependent variable. GFCF (Gross Fixed Capital Formation) variable, which exhibits a positive correlation with a coefficient of 0.0889. The results indicate a moderate and significant correlation among variables, with non-renewable and renewable energy sources demonstrating weaker associations with GDP. Foreign direct investment has a favorable association with GDP, as gross fixed capital formation. These findings of the study highlight a strong positive link between the independent and dependent variables.