Renewable and Sustainable Energy Reviews 47 (2015) 732–745

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Renewable and Sustainable Energy Reviews

journal homepage: www.elsevier.com/locate/rser

The causal relationship between energy consumption and economic

growth in the ASEAN-5 countries
Muhammad Azam a,b,n, Abdul Qayyum Khan c, B. Bakhtyar a, Chandra Emirullah d
a
School of Economics, Finance & Banking, College of Business, Universiti Utara Malaysia, Malaysia
b
Department of Management Sciences, Abdul Wali Khan University, Mardan, KP, Pakistan
c
Department of Management Sciences, COMSATS Institute of Information Technology, Wah Cantt Campus, Pakistan
d
COLGIS, Universiti Utara Malaysia, Malaysia

art ic l e i nf o a b s t r a c t

Article history: The objective of this study is to examine the causal relationship between energy consumption and
Received 9 September 2014 economic growth for ASEAN-5 countries which includes Indonesia, Malaysia, Thailand, Singapore, and
Received in revised form the Philippines. For empirical examination annual time series data in the period of 1980–2012 are used.
15 December 2014
The results of Johansen co-integration test reveal that there exists one co-integrating relationship among
Accepted 8 March 2015
the variables in case of Indonesia, Malaysia, the Philippines and Singapore. The results uncover the
existence of two co-integrating associations among the variables for Thailand. The Granger causality test
Keywords: suggests that there is no unilateral causality for Indonesia as in all the three cases. In case of Malaysia the
Energy use economic growth caused energy consumption, however, no evidence is found for causality either from
Economic growth
exports or from gross fixed capital formation to energy consumption. While, in the cases of Thailand and
ASEAN-5
the Philippines the direction of causality runs from gross fixed capital formation to energy consumption.
For Singapore, energy consumption runs from two sides i.e. one from exports side and the other from
gross fixed capital formation side. The findings exhibit that energy consumption has significant and long
run relationship to economic growth for almost all ASEAN-5 countries. The findings suggest that policy
makers need to formulate policies conducive to the energy development which will consequently
accelerate sustainable economic growth in ASEAN countries. Energy development should be based on
the existing condition of each country. A comprehensive investment framework for renewable energy
should also be developed besides maintaining adequate energy inventory. The ASEAN countries should
strengthen their institutions and capacity as well as cooperation in energy management and develop-
ment.
& 2015 Elsevier Ltd. All rights reserved.

Contents

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733
1.1. Overview on the energy consumption in ASEAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734
2. Summary of previous studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 736
3. Data description and methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739
3.1. Data sources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739
3.2. Model specification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740
4. Results and discussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740
4.1. Unit root analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740
4.2. Correlation analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741
4.3. Impulse response function – graphical analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741
4.4. Variance decomposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741
4.5. Granger causality test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742
5. Concluding remarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744

n
Corresponding author at: School of Economics, Finance & Banking, College of Business, Universiti Utara Malaysia.
E-mail address: drazam75@yahoo.com (M. Azam).

http://dx.doi.org/10.1016/j.rser.2015.03.023
1364-0321/& 2015 Elsevier Ltd. All rights reserved.
 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745 733

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744

1. Introduction process and are utilized exclusively in production. Normally, eco-

nomic experts think that capital, labor and state are the primary
Energy acts as a crucial role in the process of economic growth agents of production, and goods (i.e., fuels and materials) are
and development of a nation. Thus, viable energy availability is intermediate inputs [31]. The study of Koutroumanidis et al. [42]
necessary in society to attain sustainable economic development. In expounds that energy resources play a significant role in the
the same way, economic development is helpful to the environment economic growth and social welfare. This includes biomass and
and the two parts reciprocally encourage each other [21]. It has been fuelwood which is a crucial renewable energy source that can make a
also observed, that at the initial stage of economic development notable contribution as a substitute for oil. Similarly, Arabatzis and
there would be relatively little environmental pollution. Presumably, Malesios [8] highlight the importance of biomass (i.e., wood and
industrialization, modernization and urbanization create environ- fuelwood) which is a renewable energy source that can contribute
mental pollution which is a serious environmental concern not just indubitably to the energy needs of modern society in the case of least
for developed but equally for the developing countries. However, developed and developing countries. In a similar study, Oyedepo [50]
gradually at the more advanced stage of economic development, a summarized that access to clean modern energy services is a big
high-polluting industrial economy turns into service economy or challenge facing the African continent because energy is essential for
technology-based economy with the changes in the economic socioeconomic development and poverty reduction. In Nigeria,
structure of the country, where the degree of environmental pollu- 60–70% of the population is still deprived of electricity. The findings
tion decreases significantly [35]. suggested that factors that must be considered are a complete
The use of energy as a global commodity in the process of exploitation and enhancement of renewable energy resources,
economic growth and development is not only necessary but energy efficiency practices, as well as the application of energy
highly significant. Like other economic growth factors i.e. physical conservation measures in numerous sectors including construction
capital and human capital, etc., energy development is likewise an
of industrial, residential, and office buildings, as well as in trans-
essential determinant of economic growth and development [26].
portation, etc.
While, energy development means enhanced provision of energy
On the other hand, alongside with the positive impact of
not only in quantity, but equally in quality. Energy can be in the
energy on economic growth and development, and a positive
form of fuel, power and light etc. and is consumed by human in
relation between energy and human activities, the negative impact
their daily activities. Energy is also used in the industrial process,
of energy on socioeconomic development has also been observed,
agriculture, mining, industry and services, including transport and
for example in the form of high energy cost (i.e., electricity bills).
information technology sectors. Thus, when agricultural and
According to Barnes and Halpern [19] in developing countries the
industrial activities increase, the demand for energy consumption
poor class is often willing to pay for usual energy services, but face
also increases. Therefore, the non-availability or meager access to
high access costs or non-availability of services especially in the
consistent and inexpensive, appropriate energy services undeni-
rural areas. Most importantly, when energy prices rise in most
ably acts as a hindrance to socioeconomic development. It is
sectors of the economy and society, the general price level also
thought that clean energy has been a central part of economic
upsurges. Thus, the poor class is badly affected by the high food
growth and development for many industrialized countries after
price which is a major component of the household budget in less
the great industrial revolution. History tells that in the ancient
developed countries. Consequently, food prices increase because of
time, people were using their own physical labor for power, or
increase in transport costs and higher prices of inputs to agricul-
animal, but gradually with developments in technology, electricity
ture (e.g., fertilizers, pesticides, hybrid seeds and diesel used by
replaced the traditional sources of energy. Clearly, the role of
tractors and irrigation pumps). Besides, the negative affect of
energy in this modern era cannot be negated. In a like vein, energy
higher energy prices on household income which may attenuate
is required for many essential purposes which include space
the level of GDP growth [24]. The study of Foxon and Steinberger
heating, cooking. The shift has been from local biomass (e.g.
[31] brought out the inconvenience of quantifying the contribution
firewood, agriculture waste) to industrialized fuels (e.g. LPG,
of energy inputs to economic development. However, the devel-
natural gas) and also electricity [57].
opment and application of useful measures will provide a better
The study of Chontanawat et al. [26] finds that energy plays a
understanding on the support of energy inputs on past economic
crucial part in promoting an economic system on demand and
supply side. Where, on the demand side, energy being an important
Table 1
product of consumers, they decide to purchase it in order to Access to modern energy services in ASEAN, 2011 (latest).
maximize their utility. While, on the supply side, energy is an Source: IEA (2013), South East Asia Energy Outlook.
essential factor of production in addition to capital, labor and
Country Population with no access Population use traditional method
materials and it seems also to play a predominant part in the
to electricity of biomass for cookinga
economic and social growth of rural areas. The study further added
that all these suggest that there should be a causal linkage running Million Share (%) Million Share (%)
from energy consumption to Gross Domestic Product (GDP) as well
Indonesia 66 27 103 42
as vice versa. The studies of Ayres and Warr [15] and Stern [57] also
Malaysia 0 1 1 3
uncover that the increasing availability of inexpensive, affordable and Philippines 28 30 47 50
better quality varieties of energy inputs has performed a substantial Singapore 0 0 0 0
function in pushing economic growth in emerging and industrialized Thailand 1 1 18 26
economies. Further, Stern [57] stated that basic factors of production Total ASEAN-5 95 11.6b 169 24.2b

are defined as inputs that are available at the initial stage of the a
Preliminary estimates based on IEA and World Health Organization (WHO)
period under consideration and are not directly utilized, while databases.
b
intermediate inputs are generally formed under the production Shows figures are in averages.
734 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745

growth, and the suggestions of a transition to low-carbon sources clean energy is relatively urgent than ever. The International
of energy on upcoming economic growth. Similar evidences Energy Agency's (IEA) [38] report on South East Asia has shown
provided by a study of environmental themes (e.g., carbon emis- that the Southeast Asia region is particularly a diverse set of
sions) more and more in recent years have assumed negative countries with considerable differences in the scale and patterns
externalities with Data Envelopment Analysis (DEA) [59,66]. of energy use and energy resource endowments. The energy
Hence, objectionable outputs are jointly produced with wanting demand in the region increased in the last three decades and
outputs, while at the same time the objectionable outputs could thus, energy demand would increase by over 80% between today
be considered as having no value in the final evaluation which and 2035. During 2012 in Southeast Asia the fossil-fuel subsidies
consequently may show misleading outcomes. Consequently, the are estimated to be US$51 billion. Though, some reform efforts
unacceptable outputs of carbon emissions are damaging; it should were made particularly in Indonesia, Malaysia and Thailand,
be digested to the degree of performance [54]. subsidies remain the most important factor distorting energy
markets. They result in wasteful energy consumption, burden on
1.1. Overview on the energy consumption in ASEAN government budgets, and discouraged investment in energy
infrastructure and efficient technologies. In South Asia more than
In Asian countries, energy consumption has progressively 130 million people have no access to electricity. Apparently, there
increased over the past few decades due to the population growth are very high levels of access to electricity in Brunei Darussalam,
and industrial expansion [29,44]. Hence, with the passage of time Malaysia, Thailand and Singapore, while, the levels are below 75%
along with the evolution of society, the requirement to hold more in the case of Indonesia and the Philippines. The majority of the
region's population still uses traditional biomass for cooking,
Table 2 which contributes to pollution (see Table 1). The report of IEA
Population and urbanization.
[38] also reveals that for the region it is necessary to devise sound
Sources: IEA (2013), UNPD and World Bank databases; IEA analysis.
policies in order to enhance investment, which is significant for
Country/year Population (million) Urbanization rate (%) improving energy security, affordability and sustainability. For this
purpose, almost US$1.7 trillion of cumulative investment in
2011 2035 2011–2035a 2011 2035
energy-supply infrastructure to 2035 is needed in Southeast Asia,
Indonesia 242.3 301.5 0.9 51 66 with almost 60% of the total in the power sector. As the con-
Malaysia 28.9 38.6 1.2 73 82 sequence, rising energy efficiency would provide foremost energy
Philippines 94.9 135.6 1.5 49 59 security, economic and environmental benefits.
Thailand 69.5 69.7 0.0 34 45 Grant [34] notes that electricity prices will continue to upsurge
Rest of ASEAN 161.9 191.0 0.7 33 49
ASEAN 597.5 736.5 0.9 45 59
during the year due to higher liquefied natural gas (LNG) prices in
Thailand. Similarly, average electricity prices have increased about
a
Compound average annual population growth rates. 5% in the mid of current year in Vietnam. In Indonesia, electricity

Table 3
Energy consumption and production: a comparison.
Source: Central Intelligence Agency (2014), the World Bank Factbook.

Energy Brunei Darussalam Indonesia Malaysia Philippines Thailand Singapore

Electricity production 3.723 billion kWha 183.4 billion kWha 118 billion kWhb 67.45 billion kWha 173.3 billion kWhb 44.41 billion kWha
Electricity consumption 3.391 billion kWha 158 billion kWha 112 billion kWhb 56.84 billion kWhc 169.4 billion kWhb 40.62 billion kWhc
Oil production 141,000 bbl/dayb 912,100 bbl/daya 603,400 bbl/daya 25,240 bbl/dayb 213,000 bbl/daya 20,170 bbl/dayb
Oil proved reserves 1.1 billion bbld 4 billion bbld 2.9 billion bbld 138.5 million bbld 442 million bblb 0 bbld
Natural gas proved reserves 390.8 billion cu md 3.994 trillion cu mb 2.35 trillion cu mb 98.54 billion cu md 299.8 billion cu mb 0 cu md
Natural gas production 12.44 billion cu ma 82.8 billion cu mc 66.5 billion cu mc 3.91 billion cu mb 28.21 billion cu ma 0 cu ma
Natural gas consumption 2.97 billion cu mc 41.35 billion cu mc 35.7 billion cu mc 2.86 billion cu mc 45.08 billion cu mc 8.778 billion cu ma
Electricity installed generating capacity 759,000 kWa 39.9 million kWa 25.24 million kWe 16.36 million kWc 32.6 million kWb 10.25 million kWc
Refined petroleum products production 13,500 bbl/daya 935,300 bbl/daya 649,700 bbl/dayf 181,300 bbl/daya 913,600 bbl/daya 1.357 million bbl/daya
Refined petroleum products consumption 14,640 bbl/daya 1.322 million bbl/daya 542,900 bbl/daya 315,600 bbl/daya 721,100 bbl/daya 1.25 million bbl/daya
CO2 emissions from energy consumption 8.656 million Mta 402.1 million Mta 181.9 million Mtc 81.15 million Mta 278.5 million Mtc 212.4 million Mta

a
2011 Estimated.
b
2012 Estimated.
c
2010 Estimated.
d
2013 Estimated.
e
2009 Estimated.
f
2008 Estimated.

Table 4
Major energy indicator for ASEAN.
Source: IEA (2013), South East Asia Energy Outlook.

Indicator/year 1990 2000 2011 2000–2011a (%)

GDP (market exchange rate) $788 billion $1261 billion $2185 billion 5.1
Population 444 million 522 million 597 million 1.2
Primary energy demand 233 Mtoe 373 Mtoe 549 Mtoe 3.6
Primary energy demand per capita 0.5 toe 0.7 toe 0.9 toe 2.3
Energy related CO2 emissions 368 Mt 715 Mt 1166 Mt 4.5

a
Shows average annual growth rates.
 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745
prices increased by almost 15% last year and the report further
extended that they are probably to be augmented “dramatically”–
by up to 65%. Industrial users would be affected badly because
many of ASEAN's economies are low labor cost centers that have
enhanced manufacturing production; where electricity prices can
consist up to 20–25% of overall costs of production. In Malaysia,
both industrial and commercial companies are bigger users of
electricity consuming 78% electricity. The IEA [38] observes that
demographic changes affect the level and pattern of energy
consumption, through its effect on economic development and
growth. In 2011, Southeast Asia's population was recorded nearly
600 million. Brunei Darussalam has the least population, at almost
400 thousand people, while Indonesia has the largest, at 242
million people, which is also the 4th largest country in the world.
Southeast Asia's population is expected to rise to about 736.5
million in 2035 (see Table 2). It has been likewise observed that
urbanization increases gradually in Southeast Asia, where it grew
at an average pace of 3.1% between 1990 and 2011 per year, which
is more than double the population increase rate in the area. The
urban population in developing countries typically consumes
more energy, particularly in the residential and transport sectors
compared to their rural counterparts.
Similarly, Indonesia is the largest energy consumer in South-
east Asia at 36% of the region's total primary consumption in 2011.
Though, Indonesia is a net importer of oil, but it is the world's top
exporter of steam coal along with key supplier of LNG. Indonesia's
population is expected to increase from 242 million to 302 million,
where its per capita consumption to rise by 46% from 0.8 tons in
2011 to 1.2 tons in 2035. Thailand has the 2nd largest primary
energy demand in ASEAN, at 118 million tons in 2011. Thailand is
highly dependent on energy imports because of its scarce indi-
genous resources. Its per capita energy consumption continues to
rise, approaching 3 tons in 2035. Similarly, the 3rd largest energy
consumer in the ASEAN region is Malaysia, largely a net exporter
of oil and natural gas. It is estimated that Malaysia's population
Table 5
Compact prior empirical studies on energy consumption and economic growth nexus.
Source: Authors compilation.
Author (s) Methodology, sample, country
Stern [58] VAR, 1947–1990, USA
Glasure and Lee [33] Cointegration, ECM 1961–1990, South Korea, Singapore
Fatai et al. [30] Toda and Yamamoto approach, 1960–1999, New Zealand, India, Uni-directional causality runs from GDP to energy consumption for Australia.
Australia, Indonesia, the Philippines and Thailand
Chiou-Wei et al. [25] VAR, 1954–2006, Taiwan, South Korea, Singapore, Hong Kong, Empirical evidence on the Philippines and Singapore reveals a uni-directional
Indonesia, Malaysia, Philippines and Thailand
Nanthakumar and ARDL, 1971–2008, Malaysia
#Subramaniam##
[49]
Ozturk et al. [52] Panel causality
51 Countries
Low income
Lower middle income
Upper middle income
Asghar and Rahat Graph Theoretic Approach, 1971–2005, Pakistan
[13]
Belke et al. [23] VAR, 1981–2007, 25 OECD Countries
Kaplan et al. [40] VECM, 1971–2006, Turkey
Lau et al. [44] FMOLS, 1980–2006, 17 Asian countries
Belaid and 1971–2010, VECM, Algeria
Abderrahmani [22]
Ouedraogo [51] VAR, 1980–2008, 15 African countries
Ahmed et al. [3] VAR, 1975–2009, Pakistan
735
will grow at an average yearly pace of 1.2% between 2011 and
2035, reaching 39 million. The GDP of Malaysia increases at 4% per
year, which is the important factor helping to drive an increase in
Malaysian primary energy demand by 71% in 2011–2035.
Currently Malaysia's per capita energy use is quite high for the
region. Malaysian electricity demand is expected to double by
2030 and then increase further to just over 300 TWh in 2035. This
calls for an expansion of installed power generation capacity from
29 GW in 2011 to 67 GW in 2035. In the Philippines, electricity
demand is estimated to grow at 4.6% per year on average, to over
200 TWh in 2035. Table 3 shows a brief summary of data, statistics
on energy expenditure and yield in all countries under the subject.
It is evident from Table 4 that since the Asian Financial Crisis of
1997–1998 a sharp fall in energy consumption has been observed.
However, currently, energy demand growth is persistent and in
2011 primary energy demand was recorded around 549 million
tonnes of oil equivalent (Mtoe), 4.2% of global demand.
It is the objective of the present study to reveal on the true
causal relationship between energy consumption and economic
growth in ASEAN-5 countries, namely Indonesia, Malaysia, Thai-
land, Singapore, and the Philippines. The selection of these
countries has been constructed based on the assumption that all
these countries possess similar characteristics. For empirical ana-
lysis this study utilized the data covering the period from 1980 to
2012. Though, the study of Bakhtyar et al. [18] using a survey
method reveals that regardless of the deficiency of energy in five
South East Asian countries, namely Indonesia, Malaysia, Singapore,
Thailand and the Philippines, brought by their rapid economic
growth, the share of renewable energy in energy production is
continuously falling and more reliance is still placed on fossil fuels
for energy production. The study maintains that although these
five countries have a collective population of 420 million, this
number is slightly less than the population of 25 European
countries. However, these five countries have created a great
market in the world and have enjoyed substantial economic
Outcomes
No relationship.
No causal relationship for South Korea, while, uni-directional causal relationship
for Singapore.
No relationship for India, Indonesia, the Philippines and Thailand.
causality running from economic growth to energy consumption while energy
consumption may have affected economic growth for Taiwan, Hong Kong,
Malaysia and Indonesia.
Bi-directional causal relationship.
Uni-directional relationship runs from Growth to energy.
Bi-directional causal relationship.
No relationship.
One-way causality runs from energy consumption to economic growth.
Bi-directional causal relationship.
Bi-directional causal relationship.
Causality runs from energy consumption to GDP in the short-run, however,
causal relation exists from GDP to energy consumption in the long-run.
bi-directional causal relationship.
The causality runs from GDP to energy consumption in the short-run, and from
energy consumption to GDP in the long-run.
Bi-directional causality between the electricity consumption per capita and
economic growth.
736 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745

growth in recent years. Thus, a further empirical study is needed
to explore the causal relationship between energy use and
economic growth, which is the primary aim of this study. Likely,
this is the first inclusive empirical investigation on the matter
under the subject area in the context of ASEAN-5 countries and
will vigorously contribute to the literature on energy use and
economic growth nexus.
The remainder of this study is organized in the following manner.
Summary of previous studies is presented in Section 2. Data sources
and construction of variables are reported in Section 3. Econometric
methodology and empirical results are discussed in Section 4. Section 5
covers concluding remarks.
2. Summary of previous studies
The existing literature on the relationship between energy
consumption and growth is mostly started from the pioneering
work of Kraft and Kraft [43]. The study of Kraft and Kraft [43]
tested for causality between energy consumption and Gross
National Product (GNP) in USA during 1947–1974. The findings
revealed unidirectional causality running from GNP to energy
consumption. In a similar study Abosedra and Baghestani [2] used
the standard Granger causality tests on U.S. data during 1947–1987
and validated Kraft and Kraft's empirical results. On the other
hand, some studies have demonstrated mixed results due to
utilization of different time frames, data sets and methodologies.
Akarca and Long [5] also finds no evidence of causality between
energy consumption and GNP when the time period is condensed
by two years. They let out that Kraft and Kraft results are spurious.
Nevertheless, the study of Yu and Jin [65] concluded no causality
exists between energy consumption and GNP variables in the USA.
Similarly, Payne [53] after using the Toda–Yamamoto causality
tests that gave away the absence of Granger-causality between
energy use and economic growth which favors the neutrality
hypothesis for US during 1949–2006.
In a study, Chontanawat et al. [26] confirms that causality from
GDP to energy consumption is relatively predominant in the
OECD/developed countries as compared to the non-OECD/devel-
oping countries. The study proposed that it is only in the very poor
countries that causality from GDP to energy seems to be mostly
weak, possibly reflecting that many of these countries have
economies based on agriculture and hence, given their stage of
development, which are usually less energy dependent. In another
study Chontanawat et al. [27] finds that causality from energy to
GDP to be more dominant in the developed OECD countries than
the developing non-OECD countries in a panel of 100 countries.
The study of Bartleet and Gounder [20] establish that long-run
association between energy consumption, real GDP and energy
costs, while causality runs from economic growth in energy
consumption in New Zealand during 1960–2004. Tsani [61]
empirical findings advocate that there is a unidirectional affiliation
between the total energy consumption and economic growth at an
aggregated level, however, at the disaggregated level; economic
growth has a bidirectional causal relationship with the industrial
and residential energy consumption for Greece during 1960–2006.
The study of Joyeux and Ripple [39] shows causality runs from
income to energy consumption for 56 developed and developing
countries.
Apergis and Payne [6] conducted a study covering 11 countries
of the Commonwealth of Independent States during 1991–2005
using error correction model. The findings indicated that there was
a unidirectional causality from energy consumption to economic
growth in the short-run while bidirectional causality between
energy consumption and economic growth in the long-run was
found. In another study, Apergis and Danuletiu [7] find a long-run
equilibrium significant linkage between real GDP, energy consump-
tion, the labor force, and real gross fixed capital formation. The
Granger-causality results revealed both short-run and long-run
causality from energy consumption to economic growth for Roma-
nia during 2000–2011. Souhila and Kourbali [55] find that energy
consumption and GDP are not cointegrated, while there is uni-
directional causality running from GDP to energy consumption but
not vice versa for Algeria during 1965–2008. The study of Kalyoncu
et al. [41] in the case of Georgia and Azerbaijan finds that energy
consumption and economic growth are not cointegrated during the
period of 1995–2009. However, in the case of Armenia these two
variables have shown significant cointegration. Moreover, the
empirical finding indicated there is unidirectional causality that
runs from per capita GDP to per capita energy consumption but
only in case of Armenia.
In a study, Stern and Enflo [56] applied Granger causality and
cointegration methods to a Swedish time series data covering 150
years to examine whether upsurges in energy use and energy quality
have driven economic growth or vice versa. The study found that the
linkage between energy and growth may also have changed over
time-energy causes output growth in the full sample while output
causes energy use in recent smaller samples. Ajmi et al. [4] investigate

Table 6
ADF unit root tests.

Countries Status of equation EC EG EXPR GFCF

Level 1st Diff. Level 1st Diff. Level 1st Diff. Level 1st Diff.

Indonesia Intercept
2.92[1]
5.89[1]nnn
1.67[2]
3.86[2]nnn
1.81[0]
4.99[0]nnn
2.38[0]
6.34[0]nnn
Intercept and Trend
3.04[1]
5.72[1]nnn
2.02[2]
3.77[2]nn
1.89[1]
4.92[1]nnn
2.48[1]
6.24[1]nnn

Malaysia Intercept
2.40[1]
4.96[1]nnn
2.58[1]
5.73[1]nn
2.01[1]
3.46[1]nnn
3.09[1]
5.54[1]nnn
Intercept and Trend
3.25[0]
4.85[0]nnn
3.13[1]
5.61[1]nnn
0.47[0]
4.38[0]nn
2.95[0]
5.57[0]nnn

Thailand Intercept
2.98[1]
5.85[1]nnn
2.53[1]
4.89[1]nnn
0.92[0]
3.67[0]nn
2.96[1]
4.39[1]nnn
Intercept and Trend
3.06[1]
5.72[1]nn
3.38[0]
4.79[0]nnn
1.72[1]
3.71[1]nn
3.28[0]
6.58[0]nnn

Philippines Intercept 1.92[0]
4.01[0]nnn
2.77[6]
4.19[6]nnn
1.32[0]
3.48[0]nnn
3.28[1]
4.30[1]nnn
Intercept and Trend
1.35[1]
3.63[1]nnn
3.28[6]
4.19[1]nnn 0.01[1]
4.64[1]nnn
2.29[0]
4.36[0]nnn

Singapore Intercept
0.95[0]
4.36[0]nnn
3.44[1]
6.61[1]nnn
1.68[0]
3.49[0]nnn
1.76[0]
3.76[0]nnn
Intercept and Trend
3.29[1]
4.31[1]nn
3.34[1]
6.64[1]nnn
3.40[1]
4.80[0]nnn
2.96[1]
3.61[1]nnn

Note: Figures in square brackets besides each statistic show optimum lags selected using the minimum AIC value. While, figures in parentheses are first difference of
variables.
nn
Significant at 5%.
nnn
Significant at 1%.
 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745 737

the real causal relations between energy consumption and national
income for the G7 countries. The findings exposed that Hiemstra–
Jones test reveals unidirectional causality running from energy con-
sumption to GDP in the UK, while bidirectional causality between
energy consumption and GDP is established in Canada, France, Japan
and US. However, Kyrtsou–Labys test indicates that a unidirectional
causality flows from energy consumption to GDP for France and the
US, and from GDP to energy consumption for Germany. Abid and Sebri
[1] find mixed results on energy consumption and growth in Tunisia
during 1980–2007. The results show at aggregate level bidirectional
causality relationship between energy consumption and growth in the
long-run only, while, the disaggregated analysis provides different
directions of causality for different sectors. In a recent study, Dedeoglu
and Piskin [28] find that there is a unidirectional causality affiliation
that runs from energy consumption to the economic development in
the long run only for the 15 countries of former Soviet Union states
and Commonwealth Independent States countries during the period
1992–2009 regardless whether Russia is included or omitted.
Some other studies of Asia and the Pacific countries, for example,
Yu and Choi [64] observe that there exists a causal linkage between
GNP and energy consumption in South Korea and the Philippines.
Hwang and Gum [36] find bi-directional causality between GNP and
energy consumption in Taiwan. The study of Masih and Masih [47]
uses six Asian countries – India, Indonesia, the Philippines, Pakistan,
Malaysia and Singapore to examine the causality between energy
consumption and income. The study revealed that energy consump-
– Indonesia, Malaysia, Singapore, and Thailand during 1971–2002. The
findings indicate that there is a bi-directional causality between
electricity consumption and economic growth in Singapore and
Malaysia, while, uni-directional causality runs from economic growth
to electricity use in the case of Indonesia and Thailand. In a similar
study Asafu-Adjaye [10] finds that in the short-run, unidirectional
causality runs from energy to income in India and Indonesia, while
bidirectional causality runs from energy to income for Thailand and
the Philippines countries. However, for Thailand and the Philippines,
energy, income and prices are reciprocally causal. The study only
observed the short-run neutrality in case of Indonesia.
Similarly, Asghar [14] carried out a study on five South Asian
Countries; Pakistan, India, Sri Lanka, Bangladesh and Nepal by
using Error Correction Model and Toda–Yamamoto approach. The
study found that there is unidirectional Granger causality flows
from coal to GDP, and unidirectional Granger causality running
from GDP to electricity consumption and total energy consump-
tion in case of Pakistan. In India no causal relationship was found,
while in the case of Sri Lanka only unidirectional Granger causality
runs from GDP to electricity consumption and total energy con-
sumption. Similarly, for Bangladesh unidirectional Granger caus-
ality is detected from GDP to electricity consumption and from gas
Table 8
Pearson correlation analysis.

tion and income to be cointegrated for India, Pakistan and Indonesia,

Countries EC EG EXPR GFCF
where, energy consumption is causing income in India, the income is
causing energy consumption in Indonesia and bi-directional causality Indonesia EC Pearson correlation 1 0.095 0.355 nn
0.208
exist in Pakistan. However, the finding portrayed no causality for the Sig. (2-tailed) 0.600 0.043 0.246
EG Pearson correlation 1 0.014
0.060
Philippines, Malaysia and Singapore. In another study, Masih and
Sig. (2-tailed) 0.939 0.741
Masih [48] discovers bi-directional causality in Korea and Taiwan that EXPR Pearson correlation 1 0.784n
supports Hwang and Gum [36] findings for Taiwan. Glasure [32] finds Sig. (2-tailed) 0.000
that real oil price is a key determinant of real national income and GFCF Pearson correlation 1
energy consumption for South Korea. In the previous studies, a lack of Sig. (2-tailed)

causality between energy and real income is due to the omitted Malaysia EC Pearson correlation 1
0.184
0.258
0.050
variables. In the same vein, Yoo [63] studied the causal link between Sig. (2-tailed) 0.305 0.147
0.050
EG Pearson correlation 1 -0.174
0.185
electricity consumption and economic growth in the ASEAN countries
Sig. (2-tailed) 0.331 0.303
EXPR Pearson correlation 1 0.148
Table 7 Sig. (2-tailed) 0.412
Cointegration test results. GFCF Pearson correlation 1
Sig. (2-tailed)
Countries N. Hypothesis A. Hypothesis Maximum eigen value test Thailand EC Pearson correlation 1
0.194
0.331nnn 0.243
Sig. (2-tailed) 0.280 0.060 0.173
Statistics Critical value EG Pearson correlation 1
0.342nnn
0.386nn
Sig. (2-tailed) 0.051 0.027
n
Indonesia r ¼0 r ¼1 62.0556 47.21 EXPR Pearson correlation 1 -0.101
r ¼1 r ¼2 19.96380 29.68 Sig. (2-tailed) 0.575
r ¼2 r ¼3 5.273556 15.41 GFCF Pearson correlation 1
r ¼3 r ¼4 0.186283 3.76 Sig. (2-tailed)
Malaysia r ¼0 r ¼1 48.8605n 47.21 Philippines EC Pearson correlation 1 0.089
0.428nn 0.220
r ¼1 r ¼2 16.72932 29.68 Sig. (2-tailed) 0.620 0.013 0.219
r ¼2 r ¼3 6.588524 15.41 EG Pearson correlation 1
0.084 0.393nn
r ¼3 r ¼4 1.241661 3.76 Sig. (2-tailed) 0.640 0.024
Thailand r ¼0 r ¼1 66.6103n 47.21 EXPR Pearson correlation 1
0.179
r ¼1 r ¼2 29.7687nn 29.68 Sig. (2-tailed) 0.319
r ¼2 r ¼3 10.71863 15.41 GFCF Pearson correlation 1
r ¼3 r ¼4 0.546285 3.76 Sig. (2-tailed)

Philippines r ¼0 r ¼1 48.0490nn 47.21 Singapore EC Pearson correlation 1 0.157
0.640n 0.711n

r ¼1 r ¼2 20.70083 29.68 Sig. (2-tailed) 0.384 0.000 0.000
r ¼2 r ¼3 4.749868 15.41 EG Pearson correlation 1 0.106 0.146
r ¼3 r ¼4 0.000332 3.76 Sig. (2-tailed) 0.558 0.418
EXPR Pearson correlation 1
0.710n
Singapore r ¼0 r ¼1 48.5021nn 47.21 Sig. (2-tailed) 0.000
r ¼1 r ¼2 17.79390 29.68 GFCF Pearson correlation 1
r ¼2 r ¼3 8.628016 15.41 Sig. (2-tailed)
r ¼3 r ¼4 0.375163 3.76
n
Correlation is significant at the 0.01 level (2-tailed).
n
Significant at 1%. nn
Correlation is significant at the 0.05 level (2-tailed).
nn
Significant at 5 %. nnn
Correlation is significant at the 0.10 level (2-tailed).
738 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745

consumption to GDP, while the causal direction is from petroleum
to GDP for Nepal during 1971–2003 except for Sri Lanka (1980–
2003). Imran and Siddique [37] empirically analyzed the linkage
between energy consumption and economic growth for three
SAARC countries – Bangladesh, India and Pakistan during 1971–
2008. The finding revealed there is exists Granger causality
running from energy consumption to economic growth only in
the long run while, not in the short run. The findings of Lean and
Smyth [45] reveal that in the long-run there is unidirectio-
nal Granger causality running from electricity consumption and
emissions to economic growth in five ASEAN countries during
1980–2006.
In a similar way, the findings of Azlina and Mustapha [17]
demonstrate the existence of the long-run linkage between energy
consumption, economic growth and pollutant emission for Malay-
sia over the period 1970–2010. The empirical results further reveal
a unidirectional causality flowing from growth to energy con-
sumption, from pollutant emissions to energy consumption and
from pollutant emissions to economic growth. In a study, Wahid
et al. [62] empirically examines the relationship between energy
consumption, economic growth and CO2 emissions using data for
the period 1975–2011 in three ASEAN countries – Indonesia,
Malaysia and Singapore. The findings portrayed evidence of
unidirectional causality from energy consumption to economic
growth in Malaysia. There was unidirectional granger causality
running from energy consumption to economic growth in Indo-
nesia, while the results revealed no causal linkage in case of
Singapore. Tang and Tan [60] find that energy consumption and
economic growth Granger caused each other in both the short and
long run in Malaysia during 1972–2009. Both the Johansen–
Juselius cointegration test and bounds testing approach to coin-
tegration reliably suggested that the variables were cointegrated.

Response of EC to One S.D. Innovations Response of EG to One S.D. Innovations

0.20 0.6

0.15 0.4

0.10 0.2

0.05 0.0

0.00 -0.2

-0.05 -0.4
1 2 3 4 5 6 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of EXPR to One S.D. Innovations Response of GFCF to One S.D. Innovations
0.12 0.08
0.06
0.08
0.04
0.04 0.02
0.00 0.00
-0.02
-0.04
-0.04
-0.08 -0.06
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Fig. 1. Response of variables to impulses of 1 S.D innovation – combines graphics for Indonesia.

Response of EC to One S.D. Innovations Response of EG to One S.D. Innovations

0.10 3
0.08 2
0.06 1
0.04 0
0.02 -1
0.00 -2
-0.02 -3
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of EXPR to One S.D. Innovations Response of GFCF to One S.D. Innovations
0.06 0.8
0.6
0.04
0.4
0.02 0.2
0.00 0.0
-0.2
-0.02 -0.4
-0.04 -0.6
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Fig. 2. Response of variables to impulses of 1 S.D innovation – combines graphics for Malaysia.
 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745 739

Azam et al. [16] discover that incoming FDI, income, trade open-
ness and human development index have significantly positive
influences on energy use in ASEAN-3 countries namely Indonesia,
Malaysia and Thailand during 1980–2012.
Summing up, the available prior studies demonstrate the
nature of temporal causality between energy consumption and
economic growth. However, the empirical results found on causal
relation between these two variables are varied and mercurial.
Therefore, empirical exploration is indispensable in order to verify
the linkage for further evidence and to understand the causal
relationship between economic growth and energy consumption
for ASEAN-5 countries from the comparative consideration. Hope-
fully, the present study will contribute much to the literature on
linkage between energy consumption and economic growth in the
context of ASEAN countries in particular and other countries in
general. Table 5 shows some prior selected empirical studies on
the nexus between energy consumption and economic growth.
3. Data description and methodology
3.1. Data sources
Annual data for the sample period 1980–2012 is used. In order
to convert current price data into constant price time series,
financial year 1990 has been used as the base year. The data were
obtained from the website (http://data.worldbank.org/news/relea
se-of-world-development-indicators-2014) of the World Bank.
Before starting to perform any empirical estimation of the
model, it is essential to analyze the time series data. The analysis
of data depends on whether the series is stationary or non-
stationary. Dispersion of data is analyzed through descriptive
statistics and correlations among the variables are analyzed by
using a Pearson correlation matrix. Augmented Dickey–Fuller
(ADF) test examines the hypothesis that the variable in question
has a unit root. If the series is found to have a unit root

Response of EC to One S.D. Innovations Response of EG to One S.D. Innovations

0.08 3

0.06 2

0.04 1

0.02 0

0.00 -1

-0.02 -2
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of EXPR to One S.D. Innovations Response of GFCF to One S.D. Innovations
0.06 1.0
0.8
0.04 0.6
0.4
0.02 0.2
0.0
0.00 -0.2
-0.4
-0.02 -0.6
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Fig. 3. Response of variables to impulses of 1 S.D innovation – combines graphics for Thailand.

Response of EC to One S.D. Innovations Response of EG to One S.D. Innovations

0.10 0.8
0.08 0.6
0.06 0.4
0.04 0.2
0.02 0.0
0.00 -0.2
-0.02 -0.4
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of EXPR to One S.D. Innovations Response of GFCF to One S.D. Innovations
0.08 0.08
0.06 0.06
0.04
0.04
0.02
0.02
0.00
0.00 -0.02
-0.02 -0.04
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Fig. 4. Response of variables to impulses of 1 S.D innovation – combines graphics for Philippines.
740 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745

differencing the data is appropriate to make it stationary, in order
to avoid the problem of spurious regression arising from non-
stationarity in the time series. Johansen Likelihood Ratio (LR) test
is used to detect the existence of a long run relationship among
the variables included in this study.
3.2. Model specification
In order to encapsulate the causality among the four main
variables namely Energy Consumption (EC), Economic Growth
(EG), Infrastructure proxies with Gross Fixed Capital Formation
and Exports (EXP). Vector Autoregression (VAR) model is used,
which treats all the variables in the system as endogenous. The
Impulse Response Function (IRF) and variance decomposition is
used to analyze the dynamic impact of the random errors on the
variable's system. To avoid vagueness in the vector autoregressive
equations, first observe that the variables are stationary individu-
ally and then observe that these variables are cointegrated. OLS
method is applied for estimation of parameters. For lag length (k)
selection Akaike Information Criteria (AIC) is used. More specifi-
cally, the following multivariate general forms of VAR models are
used for estimation:
X
k X
k X
k X
ECti ¼ α þ αj EGt
j þ βj ECPRt
j þ
j¼1 j¼1 j¼1
stochastic errors terms, called impulses or innovations or shocks,
which is assumed not to be correlated across time.
4. Results and discussion
4.1. Unit root analysis
The unit root test for Thailand, Malaysia, Indonesia, Malaysia and
Singapore are reported in Table 6. Energy consumption for all the
countries are non-stationary at level and becomes stationary after
taking the first difference when both intercept and trend is included
in the model. Economic growth is non-stationary at a level for
Indonesia, Malaysia, the Philippines and Singapore as calculated
values are less than critical values, while it becomes stationary after
taking the first difference for all the countries. Exports becomes
stationary after taking first difference for all the countries level when
both intercept and trend is included in the model. Gross fixed capital
formation is non-stationary for all countries and becomes stationary
Table 9
Result for Granger causality test.
k
γ j GFCFt
j þ λp ECt
1 μ1t Countries Null hypothesis Lags F-ratios Prob.
j
1

ð3:1Þ Indonesia EGa EC 8 0.55154 0.79102

EXPRa EC 8 0.32191 0.93527
GFCFa EC 8 0.31235 0.93998
X
k X
k X
k X
k
EGti ¼ α0 þ χ j ECt
j þ δj EXPRt
j þ ηj GFCFt
j þ vj EGt
j þ μ2t Malaysia EGa EC 4 3.79519 0.01874
j¼1 j¼1 j¼1 j¼1 EXPRa EC 4 1.16708 0.35495
ð3:2Þ GFCFa EC 4 0.91359 0.47518

Thailand EGa EC 6 1.30260 0.31833

X
k X
k X
k X
k EXPRa EC 6 1.02595 0.44848
EXPRti ¼ α″ ψ j ECt
j þ ζ j EGt
j þ τj GFCFt
j þ υj EXPRt
j þ μ3t GFCFa EC 6 3.99567 0.01535
j¼1 j¼1 j¼1 j¼1
Philippines EGa EC 2 1.22683 0.30964
ð3:3Þ
EXPRa EC 2 0.25822 0.77438
GFCFa EC 2 2.25269 0.12525
X
k X
k X
k X
k
GFCFti ¼ α0″ þ σ j ECt
j þ εj EGt
j þ Ωj EXPRt
j þ Φj GFCFt
j þ μ4t Singapore EGa EC 4 0.14521 0.96301
j¼1 j¼1 j¼1 j¼1 EXPRa EC 4 3.92330 0.01647
ð3:4Þ GFCFa EC 4 6.36357 0.00180

For each country included in the study a separate set of models are Note: a stand for null hypothesis i.e., does not Granger cause.
formed and estimated separately. In this specification μt are the

Response of EC to One S.D. Innovations Response of EG to One S.D. Innovations

0.16 1.5

0.12 1.0

0.08 0.5

0.04 0.0

0.00 -0.5

-0.04 -1.0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of EXPR to One S.D. Innovations Response of GFCF to One S.D. Innovations
0.04 0.06
0.03 0.04
0.02 0.02
0.01 0.00
0.00 -0.02
-0.01 -0.04
-0.02 -0.06
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Fig. 5. Response of variables to impulses of 1 S.D innovation – combines graphics for Singapore.
 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745 741

after taking first difference for all the countries when both intercept explain most of the variation in energy consumption in Singapore.
and trend is included in the model. Gross fixed capital formation (infrastructure) explains
Table 7 portrays the result of co-integration among the variables 0–2.03% variation in energy consumption.
for all the countries. For Indonesia and Malaysia first null hypothesis The second group of values shows the variance decomposition of
is rejected as Maximum Likelihood Ratio statistics are greater than economic growth. The variation in economic growth explains 98.94–
critical value at 1% level of significance, indicating that there exists 58.52% by itself, with values descending slowly. In the second place is
one co-integrating relationship among the variables. For Thailand the energy consumption, which explains the variation in economic growth
first two null hypothesis are rejected as ML ratio is greater than with values from 3.06% to 46.57%. Export and gross fixed capital
critical value at 5% and 1% level of significance, showing the existence formation explain 0–1.87% and 0–4.29% respectively the variation in
of two co-integrating relationship among the variables. For the economic growth.
Philippines and Singapore the first null hypothesis is rejected at 5% The third group of values refers to the export variance decom-
level of significance, indicating the existence of one co-integrating position. Export by itself explains variation ranging between
relationship among the variables of both countries. 44.93% and 38.24%, with values descending slowly. Energy con-
sumption explains 49.24–52.34% of variation in export. The other
4.2. Correlation analysis two variables, economic growth and gross fixed capital formation
explain 5.23–8.44% and 0–0.23% variation in export.
Table 8 explains correlation among the variables in four ASEAN The fourth and final group of values refers to the variance
countries. As per Pearson correlation result for correlation among decomposition of gross fixed capital formation. The variation in
the four variables, export has statistically significant relationship gross fixed capital formation explains 10.92–13.15% by itself, with
with energy consumption and gross fixed capital formation in values descending slowly. In other variables export is the second
Indonesia. It has been observed that in the case of Thailand that
export has a significant relationship with energy consumption and Table A1
economic growth, while economic growth has significant relation- Variance decomposition for Indonesia.
ship with gross fixed capital formation. In case of Philippines
Period S.E. EC EG EXPR GFCF
energy consumption has significant linkage to export, while,
economic growth has positive and significant relationship with Variance decomposition of EC
gross fixed capital formation. It is evident from Table 8 that energy 1 0.178451 100.0000 0.000000 0.000000 0.000000
consumption has a significant relationship with export and gross 2 0.182103 96.09410 3.586896 0.034244 0.284760
3 0.183018 95.57050 3.569938 0.169031 0.690534
fixed capital formation and export has significant linkage with
4 0.184687 93.87490 5.158652 0.284985 0.681463
gross fixed capital formation. 5 0.185231 93.32756 5.547952 0.293456 0.831034
6 0.185396 93.16249 5.679851 0.305922 0.851733
4.3. Impulse response function – graphical analysis 7 0.185741 92.82428 5.985388 0.322074 0.868256
8 0.185771 92.79433 5.993500 0.322337 0.889836
9 0.185839 92.73108 6.054134 0.325596 0.889185
The graphical illustration gives the evaluation of the four
10 0.185880 92.69148 6.086261 0.327333 0.894923
variables in Impulse Response Function (IRF) terms to variations,
Variance decomposition of EG
shocks or unitary innovation (of one standard deviation) in the
1 0.411909 1.848419 98.15158 0.000000 0.000000
error terms of the VAR Model. 2 0.482108 3.638536 91.69370 1.114581 3.553185
From these graphics (Figs. 1–5) the convergence of these functions 3 0.489267 3.541614 90.69128 1.224571 4.542533
can be found, in some sense it translates the rapidity of absorption of the 4 0.518603 3.252396 90.69977 1.747509 4.300323
innovation by the four variables. It is found that the absorption takes 5 0.523428 3.193740 90.13795 1.771945 4.896369
6 0.527220 3.263358 90.06990 1.819374 4.847373
6 years for energy consumption in Indonesia, Malaysia and the
7 0.531275 3.250351 89.98174 1.864628 4.903279
Philippines, 6 years for Thailand and 8 years in Singapore. The 8 0.531480 3.257141 89.91276 1.863303 4.966800
absorption for economic growth takes 8 years in Indonesia and 9 0.532515 3.272594 89.90280 1.873857 4.950749
Singapore and 7 years in Malaysia, Thailand and Singapore. The graphs 10 0.532864 3.269730 89.88185 1.877198 4.971219
for all the countries further indicate that absorption for export takes Variance decomposition of EXPR
4 years in Indonesia and Malaysia, 6 years in Thailand, the Philippines 1 0.145744 49.57245 5.477556 44.95000 0.000000
and Singapore. It is found from the graphs that absorption for gross 2 0.155488 51.68984 7.619120 40.65166 0.039375
3 0.158217 52.84311 7.539625 39.48426 0.133007
fixed capital formation (infrastructure) takes 7 years in Indonesia and 4 0.159326 52.39131 8.259104 39.19143 0.158165
Thailand, 4 years in Malaysia and the Philippines and 6 years in 5 0.159895 52.23503 8.623792 38.95928 0.181901
Singapore. 6 0.159931 52.21624 8.621936 38.94608 0.215738
7 0.160088 52.11407 8.783283 38.88724 0.215411
8 0.160146 52.07679 8.832664 38.86226 0.228286
4.4. Variance decomposition
9 0.160157 52.07057 8.840812 38.85768 0.230939
10 0.160187 52.05176 8.870885 38.84515 0.232205
Tables A1–A5 in Appendix A depict the values of variance decom-
Variance decomposition of GFCF
position of the four variables. These tables explained how the variance 1 0.115490 33.03537 12.19973 41.61437 13.15053
of each one of the series is decomposed during a period of 10 years in 2 0.135847 38.53586 19.88942 31.93237 9.642349
five ASEAN countries. The first group of columns is refers to energy 3 0.138066 37.31115 20.67059 31.00121 11.01705
consumption. The standard errors value found are ranging from 0.178 4 0.140636 36.61337 22.13257 30.31917 10.93489
5 0.143221 35.30582 24.53422 29.39013 10.76982
to 0.185 for Indonesia, 0.097 to 0.104 for Malaysia, 0.07 to 0.09 for
6 0.143433 35.20720 24.48759 29.30507 11.00014
Thailand, 0.080 to 0.088 for the Philippine and 0.127 to 0.136. The first 7 0.144125 34.88416 25.14039 29.08028 10.89517
value of standard errors for all the five countries are explained only by 8 0.144462 34.72854 25.38397 28.96198 10.92551
energy consumption. Those values of standard errors that energy 9 0.144506 34.71284 25.40563 28.94662 10.93492
consumption explains, lies between 100% and 91.69%, with values 10 0.144654 34.65056 25.53262 28.89670 10.92011

descending slowly. Economic growth is the second variable to explain Note: Ordering: EC EG EXPR GFCF, where S.E. is standard error, EG is economic
most of the variation in energy consumption with values from 0% to growth, EC is energy consumption, EXPR is real export, GFCF is gross fixed capital
6.65% in Indonesia, Malaysia, Thailand and the Philippines and exports formation.
742 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745

variables which explain most variation in gross fixed capital
formation. Export explains 28.45–41.40% variation in gross fixed
capital formation. Energy consumption explains 33.03–34.65%
variation in gross fixed capital formation, while economic growth
explains 12.19–25.52% variation in gross fixed capital formation.
4.5. Granger causality test
Granger causality test is used to investigate the direction of
causality among the four variables i.e., energy consumption,
economic growth, exports and gross fixed capital formation.
Granger causality implies the estimation of a bivariate regression.
The values of bivariate regression are presented in Table 9. It is
evident from Table 9 that there is no unilateral causality for
Indonesia as in the all three cases null hypotheses are accepted.
The results show that in Malaysia the economic growth causing
energy consumption (F¼3.79, p ¼0.01), however, no evidence
found for causality either from export or from gross fixed capital
formation to energy consumption. For Thailand and the Philip-
pines the direction of causality is from gross fixed capital forma-
tion to energy consumption, but the direction of causality for the
Philippines is statistically significant at the 12% level of signifi-
cance while for Thailand it is statistically at the 1% level of
significance. For Singapore, energy consumption plays a role from
two sides i.e. one from export side and another from gross fixed
capital formation side. The results of Table 9 indicate that for
Singapore the null hypothesis for exports and gross fixed capital
formation is rejected and the alternative is accepted with value
(F¼3.92, p ¼0.01) for export and (F¼6.63, p ¼0.00) for gross fixed
capital formation.
5. Concluding remarks
The main aim of this study is to empirically verify the causal
relationship between energy consumption and economic growth
along with some other variables namely infrastructure proxy, gross

Table A2 Table A3
Variance decomposition for Malaysia. Variance decomposition for Thailand.

Period S.E. EC EG GFCF EXPR Period S.E. EC EG GFCF EXPR

Variance decomposition of EC Variance decomposition of EC

1 0.097872 100.0000 0.000000 0.000000 0.000000 1 0.074441 100.0000 0.000000 0.000000 0.000000
2 0.101434 94.33420 2.533837 3.130654 0.001309 2 0.088017 96.88543 2.189476 4.01E-05 0.925052
3 0.103417 92.66150 2.538960 4.751701 0.047844 3 0.090011 92.65023 2.096413 3.565458 1.687901
4 0.104088 91.76018 3.169374 4.692087 0.378358 4 0.091831 89.12735 3.763068 5.460786 1.648799
5 0.104769 91.60812 3.300865 4.631648 0.459370 5 0.091954 88.97211 3.779769 5.560465 1.687657
6 0.104866 91.49669 3.294834 4.636421 0.572053 6 0.092277 88.67243 3.794780 5.547634 1.985158
7 0.104896 91.47290 3.311165 4.641180 0.574759 7 0.092356 88.61792 3.790346 5.571336 2.020401
8 0.104909 91.45348 3.325160 4.639994 0.581362 8 0.092387 88.59054 3.789089 5.595266 2.025107
9 0.104915 91.44279 3.329872 4.641546 0.585791 9 0.092396 88.57949 3.791854 5.600874 2.027786
10 0.104916 91.44089 3.329834 4.642489 0.586791 10 0.092409 88.57266 3.794234 5.602840 2.030269

Variance decomposition of EG Variance decomposition of EG

1 3.032537 46.28933 53.71067 0.000000 0.000000 1 2.452665 12.45957 87.54043 0.000000 0.000000
2 3.828230 30.01318 69.37066 0.007855 0.608298 2 2.927966 12.21123 83.93426 3.816804 0.037702
3 4.390014 35.17690 57.47066 0.006596 7.345843 3 3.417174 17.74358 61.65194 3.197845 17.40664
4 4.479789 35.19907 55.31692 0.088616 9.395396 4 3.632507 15.93947 56.23803 6.926017 20.89649
5 4.520013 34.58216 56.05928 0.088051 9.270507 5 3.715955 16.14658 54.38545 9.271148 20.19682
6 4.557094 34.16501 56.26284 0.160101 9.412045 6 3.723255 16.13929 54.49396 9.245062 20.12170
7 4.571308 34.02333 56.09127 0.254821 9.630577 7 3.735415 16.20284 54.34242 9.225319 20.22942
8 4.573934 34.00607 56.03657 0.276848 9.680514 8 3.738453 16.19346 54.25436 9.212687 20.33949
9 4.575986 33.97569 56.07547 0.276997 9.671837 9 3.742920 16.19256 54.17417 9.262752 20.37052
10 4.577865 33.95450 56.08236 0.285051 9.678090 10 3.744045 16.18285 54.16418 9.287160 20.36581

Variance decomposition of GFCF Variance decomposition of GFCF

1 0.862386 1.058276 9.590663 89.35106 0.000000 1 0.924999 0.006794 0.636269 99.35694 0.000000
2 1.012805 0.797375 7.144327 92.03671 0.021588 2 1.054633 0.485961 17.04677 76.49114 5.976134
3 1.030803 1.478619 7.781209 90.71879 0.021386 3 1.105104 3.371334 17.77853 69.75619 9.093942
4 1.044664 3.431736 7.790519 88.32830 0.449447 4 1.178032 6.855167 16.71313 61.66599 14.76571
5 1.047054 3.514359 7.780483 88.07674 0.628422 5 1.210722 6.561313 17.63653 60.72870 15.07346
6 1.048268 3.549532 7.905042 87.91822 0.627205 6 1.219485 6.524263 17.79197 60.78093 14.90284
7 1.049077 3.575897 7.972603 87.78279 0.668709 7 1.221044 6.510031 17.78815 60.64142 15.06040
8 1.049339 3.581839 7.977185 87.74625 0.694724 8 1.223088 6.591953 17.73330 60.45600 15.21874
9 1.049397 3.583242 7.979442 87.73896 0.698354 9 1.223741 6.596221 17.73346 60.41619 15.25413
10 1.049454 3.582866 7.989285 87.72938 0.698464 10 1.224257 6.597425 17.75444 60.39897 15.24917

Variance decomposition of EXPR Variance decomposition of EXPR

1 0.047174 5.452596 23.78975 12.70352 58.05413 1 0.064166 18.30092 4.680399 7.743508 69.27517
2 0.061500 33.95463 14.29463 10.51421 41.23653 2 0.070071 19.14620 9.738100 12.96559 58.15011
3 0.062794 35.39426 14.05060 10.16407 40.39108 3 0.073724 21.47568 11.43866 13.40127 53.68440
4 0.062949 35.43191 14.13165 10.23044 40.20600 4 0.074994 22.51673 11.38522 13.29621 52.80184
5 0.063101 35.71102 14.08176 10.18581 40.02141 5 0.076070 22.70116 11.09748 12.92423 53.27713
6 0.063165 35.66824 14.21249 10.17698 39.94229 6 0.076552 22.44818 11.40385 13.39256 52.75541
7 0.063210 35.67849 14.24908 10.17153 39.90089 7 0.076741 22.44562 11.49642 13.55639 52.50157
8 0.063223 35.68067 14.24351 10.16983 39.90599 8 0.076777 22.46124 11.50124 13.54396 52.49356
9 0.063226 35.67855 14.24812 10.16927 39.90406 9 0.076806 22.44997 11.49356 13.53366 52.52281
10 0.063228 35.67687 14.25233 10.16869 39.90211 10 0.076819 22.44490 11.49409 13.54527 52.51573

Note: Ordering: EC EG GFCF EXPR. Note: Ordering: EC EG GFCF EXPR.

 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745 743

fixed capital formation and trade/exports. The results of Johansen
cointegration test reveal that there exists one co-integrating relation-
ship among the variables in case of Indonesia, Malaysia, the Philip-
pines and Singapore. While, the results show the existence of two
co-integrating relationship among the variables for Thailand. Simi-
larly, the Pearson correlation result among the four variables show
statistically significant relationship for energy consumption and gross
fixed capital formation in Indonesia. In case of Thailand exports have a
significant relationship with energy consumption and economic
growth, while economic growth has a significant relationship with
gross fixed capital formation. Likewise, in case of the Philippines
energy consumption has a significant linkage with exports, while,
economic growth has a positive and significant relationship with gross
fixed capital formation. Meanwhile, the empirical results indicate that
energy consumption has a significant relationship with exports, while
gross fixed capital formation and exports has significant linkage with
gross fixed capital formation.
The Granger causality test suggests that there is no unilateral
causality for Indonesia. The results show that for Malaysia the
economic growth caused energy consumption, however, no evidence
is found for causality either from exports or from gross fixed capital
formation to energy consumption. In case of Thailand and the
Philippines the direction of causality runs from gross fixed capital
formation to energy consumption. For Singapore, energy consumption
runs from two sides i.e. one from exports side and another from gross
fixed capital formation side. Thus, the findings of the study demon-
strate that energy consumption has significant and long run relation-
ship to economic growth for ASEAN-5 countries during the period
under the study. It is also evident that energy plays a vital role in the
process of economic growth and development of those countries.
Based on the findings of the study, the following measures need to
be pursued in order to enhance energy in ASEAN countries:
 Because energy is very important for development and poverty
reduction, each ASEAN country should prioritize energy man-
agement at the national level to meet future demand, based on
the existing condition of each country.

Table A4 Table A5
Variance decomposition for Philippines. Variance decomposition for Singapore.

Period S.E. EC EG EXPR GFCF Period S.E. EC EG EXPR GFCF

Variance decomposition of EC Variance decomposition of EG

1 0.080712 100.0000 0.000000 0.000000 0.000000 1 0.127854 100.0000 0.000000 0.000000 0.000000
2 0.085139 95.49823 2.182177 1.747799 0.571797 2 0.131131 96.06655 0.005882 3.925940 0.001630
3 0.087602 93.00770 2.166350 3.908485 0.917465 3 0.133336 95.59240 0.090053 4.256674 0.060873
4 0.088059 92.99589 2.157604 3.938520 0.907984 4 0.135438 95.15568 0.157242 4.291697 0.395384
5 0.088314 92.87474 2.191078 3.963584 0.970598 5 0.136190 94.91609 0.159968 4.492454 0.431488
6 0.088324 92.86223 2.191922 3.975365 0.970486 6 0.136301 94.80142 0.166372 4.596552 0.435656
7 0.088334 92.84316 2.196736 3.984375 0.975727 7 0.136519 94.79024 0.172701 4.583260 0.453798
8 0.088336 92.84214 2.196852 3.985177 0.975833 8 0.136647 94.76842 0.173487 4.593991 0.464102
9 0.088339 92.84215 2.197026 3.984948 0.975880 9 0.136664 94.75140 0.173450 4.610654 0.464498
10 0.088339 92.84186 2.197016 3.985127 0.975993 10 0.136677 94.74815 0.173867 4.612420 0.465565

Variance decomposition of EG Variance decomposition of EG

1 0.761716 5.745502 94.25450 0.000000 0.000000 1 1.113124 0.004669 99.99533 0.000000 0.000000
2 0.963095 4.091884 72.72409 2.951478 20.23255 2 1.296091 0.010004 95.52502 0.070551 4.394429
3 0.989442 4.303343 70.35491 4.568161 20.77359 3 1.362700 0.010565 92.06672 3.933010 3.989707
4 1.017082 5.833786 67.81210 4.700528 21.65358 4 1.465437 4.089794 87.75154 4.594544 3.564120
5 1.030610 6.854340 66.91336 4.775381 21.45692 5 1.488430 5.961003 85.40268 4.766966 3.869348
6 1.035122 7.434731 66.33233 4.962631 21.27031 6 1.515541 8.162840 83.49629 4.599001 3.741871
7 1.035954 7.488619 66.23472 5.020000 21.25666 7 1.523070 8.119973 83.49846 4.558288 3.823276
8 1.036142 7.485979 66.22204 5.036567 21.25541 8 1.523427 8.141252 83.48011 4.556602 3.822033
9 1.036253 7.491867 66.21103 5.046194 21.25091 9 1.526182 8.197611 83.41763 4.569987 3.814770
10 1.036261 7.492571 66.21006 5.046780 21.25059 10 1.526452 8.199465 83.41420 4.570159 3.816176

Variance decomposition of EXPR Variance decomposition of EXPR

1 0.074187 0.529532 4.562495 94.90797 0.000000 1 0.040086 3.863495 3.775656 92.36085 0.000000
2 0.076008 4.363760 4.898048 90.42384 0.314356 2 0.042170 4.756303 4.919188 86.00253 4.321982
3 0.079781 12.32132 4.899081 82.08662 0.692976 3 0.059460 45.63413 5.298087 44.34771 4.720076
4 0.080607 12.71574 5.267470 81.32248 0.694309 4 0.060941 44.35006 5.300671 45.85213 4.497132
5 0.081098 13.57585 5.248065 80.47696 0.699121 5 0.061281 44.29907 5.319061 45.89689 4.484980
6 0.081159 13.68603 5.241786 80.36644 0.705739 6 0.062278 45.84538 5.187000 44.47683 4.490795
7 0.081202 13.71511 5.252982 80.31627 0.715636 7 0.062659 46.20840 5.181282 44.08925 4.521065
8 0.081206 13.72307 5.252610 80.30874 0.715583 8 0.062697 46.18375 5.193716 44.09959 4.522940
9 0.081207 13.72259 5.253715 80.30715 0.716546 9 0.062739 46.17793 5.221290 44.07097 4.529812
10 0.081208 13.72300 5.253998 80.30630 0.716694 10 0.062766 46.21690 5.218767 44.03328 4.531049

Variance decomposition of GFCF Variance decomposition of GFCF

1 0.075341 2.184362 0.146945 8.225533 89.44316 1 0.046289 0.262047 0.371154 2.006573 97.36023
2 0.088500 18.61783 0.178601 8.201999 73.00157 2 0.071115 48.36874 6.536951 1.556658 43.53765
3 0.101152 27.34526 7.252195 6.280077 59.12247 3 0.073843 51.72390 6.067151 1.766666 40.44228
4 0.101608 27.82825 7.218799 6.269056 58.68390 4 0.075554 49.66045 6.833678 4.857457 38.64842
5 0.102723 28.89468 7.244861 6.383823 57.47664 5 0.076050 50.12632 6.895125 4.808403 38.17015
6 0.102771 28.91982 7.238685 6.388012 57.45348 6 0.077330 51.43491 6.671029 4.768988 37.12507
7 0.102818 28.91070 7.236367 6.450146 57.40279 7 0.077434 51.29732 6.773177 4.896384 37.03312
8 0.102821 28.91239 7.236018 6.450430 57.40116 8 0.077494 51.30400 6.800381 4.904766 36.99086
9 0.102822 28.91178 7.236380 6.451834 57.40000 9 0.077544 51.32758 6.817102 4.898632 36.95669
10 0.102823 28.91228 7.236422 6.452129 57.39917 10 0.077580 51.34566 6.820345 4.911303 36.92269

Note: Ordering: EC EG EXPR GFCF. Note: Ordering: EC EG EXPR GFCF.

744 M. Azam et al. / Renewable and Sustainable Energy Reviews 47 (2015) 732–745
 Each country should have an energy development program to
shift from fossil oil to other non-renewable energy resources
based on efficiency and technology. A comprehensive invest-
ment framework for renewable energy should also be devel-
oped to encourage the participation of independent players/
investors, besides maintaining adequate national energy
inventory.
 In order to have an effective energy policy, each government
should develop their institutions and capacity related to energy
management policymaking and monitor their implementation
and progress.
 Electrification program should also be enhanced to meet the
expanding needs of the urban and rural societies in each
country.
 At the regional level, the ASEAN member countries should
strengthen their cooperation in sharing best practices and
experiences in the utilization of energy resources and energy
management and development (see also [9,11,12,46]).
Appendix A
See Tables A1–A5.
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