On the Dynamics of Energy Consumption and Employment in Illinois

Transcription

1 JRAP 39(2): MCRSA. All rghs reserved. On he Dynamcs of nergy Consumpon and mploymen n Illnos James. Payne Illnos Sae Unversy USA Absrac. Ths shor emprcal sudy ulzes U.S. annual daa from 1976 o 2006 o examne he causal relaonshp beween energy consumpon and employmen n Illnos whn a mulvarae framewor. The Toda-Yamamoo long-run causaly ess reveal undreconal causaly from energy consumpon o employmen supporve of he growh hypohess. However, he mporance of energy consumpon n economc acvy should no overshadow he envronmenal consequences of heavy relance on fossl fuel consumpon as well as he relevance of alernave renewable energy sources and mproved energy effcency for fuure economc growh. 1. Inroducon The heghened neres n he mpac of energy consumpon on economc acvy by boh academcs and polcymaers can be arbued o he recen experence of rsng energy coss, growng dependency on foregn energy sources, and ncreasng concerns abou greenhouse gas emssons. Though he dynamc causal relaonshp beween energy consumpon and economc acvy has been explored for a number of counres ncludng he U.S., an examnaon of such a relaonshp a he sae level has no been underaen n he publshed leraure (Payne, forhcomng). The as of hs shor emprcal sudy s o fll hs vod n he leraure by examnng he causal relaonshp beween energy consumpon and employmen n Illnos The sae of Illnos rans ffh n boh populaon and oupu produced among U.S. saes and s one of he op energy-consumng saes. In addon o he sze of he sae s populaon and oupu produced, he sae s energy nensve ndusral secor conrbues sgnfcanly o he demand for energy (nergy Informaon Admnsraon). Illnos exhbs varaon wh respec o energy sources and usage across fossl fuels and renewable energy. Whle Illnos s raned hrd n he U.S. n erms of recoverable coal reserves, s no raned among he op coal producers n he U.S. due n large par o he hgh sulfur conen of he coal produced. In erms of peroleum and naural gas, Illnos has he larges crude ol refnng capacy n he Mdwes and serves as a val ransporaon hub for crude whn Norh Amerca. Almos eghy percen of Illnos households use naural gas for heang her homes hough Illnos has lmed ndgenous naural gas producon. Wh respec o clean energy, Illnos s raned frs n he U.S. wh respec o nuclear power generaon wh eleven operang nuclear reacors a sx nuclear power plans. Nuclear power generaes almos half of he sae s elecrcy, and Illnos s a ne exporer of elecrcy o oher saes. On he renewable energy fron, Illnos s a maor exporer of ehanol o oher U.S. mares and exhbs a grea deal of poenal n hs area gven s corn producon. hanol refnng capacy rans second n he U.S. o Iowa. Before proceedng o an emprcal nvesgaon of he causal relaonshp beween energy consumpon and employmen n Illnos, he four hypoheses assocaed wh hs relaonshp along wh a summary of he emprcal leraure on he U.S. are summarzed n Secon 2. Secon 3 presens he daa, mehodology, and resuls whle Secon 4 provdes concludng remars.

2 nergy Consumpon and mploymen nergy consumpon-growh hypoheses and emprcal evdence for he U.S. The drecon of causaly beween energy consumpon and economc growh, measured by eher employmen or real oupu, can be summarzed n four esable hypoheses: growh, conservaon, feedbac, and neuraly. Frs, he growh hypohess suggess ha energy consumpon conrbues drecly o economc growh whn he producon process. If such s he case, he polcy mplcaons are ha energy conservaon polces whch reduce energy consumpon may possbly reduce real oupu. The growh hypohess s suppored f here s undreconal Granger-causaly from energy consumpon o real oupu. For he U.S., Araca and Long (1979), Sern (1993, 2000), and Soyas and Sar (2006) provde emprcal suppor for he growh hypohess. Second, he conservaon hypohess mples ha energy conservaon polces desgned o reduce energy consumpon and wase may no reduce real oupu. Undreconal Granger-causaly from real oupu o energy consumpon would lend suppor for he conservaon hypohess. Sudes by Kraf and Kraf (1978), rol and Yu (1989), Abosedra and Baghesan (1991), Murry and Nan (1992), Thoma (2004), and Sar e al. (2008) suppor he conservaon hypohess n he case of he U.S. Thrd, he feedbac hypohess assers ha energy consumpon and real oupu are nerdependen and ac as complemens o each oher. The exsence of bdreconal Granger-causaly beween energy consumpon and real oupu subsanaes he feedbac hypohess. Research by Glasure and Lee (1995, 1996), Zarnau (1997), Lee (2006), and Mahadevan and Asafu-Adaye (2007) lend suppor o he feedbac hypohess for he U.S. Fnally, he neuraly hypohess vews energy consumpon as a relavely mnor facor n he producon of real oupu n whch case energy conservaon polces may no adversely mpac real oupu. The absence of Granger-causaly beween energy consumpon and real oupu s supporve of he neuraly hypohess. Sudes by Araca and Long (1980), Yu and Hwang (1984), Yu and Cho (1985), rol and Yu (1987), Yu e al. (1988), Yu and Jn (1992), Cheng (1996), Murry and Nan (1996), Soyas and Sar (2003), Chonanawa e al. (2006, 2008), Soyas e al. (2007), Chou-we e al. (2008), Narayan and Prasad (2008), Payne (2009), and Payne and Taylor (forhcomng) are supporve of he neuraly hypohess n he U.S. 1 1 Whle no explcly esng for causaly, wng e al. (2007) employ only forecas varance decomposons o nfer he mpac of varous energy consumpon measures on economc growh for he 3. Daa, mehodology, and resuls Annual daa for he perod for Illnos oal energy consumpon measured n rllons of Bu was obaned from he nergy Informaon Admnsraon. Illnos oal nonfarm employmen was obaned from he Bureau of Labor Sascs and U.S. oal nonfarm employmen from he conomc Repor of he Presden. All varables are n naural logarhms. U.S. oal nonfarm employmen s ncluded as a conrol varable for he aggregae economy and o mnmze any poenal problem wh omed varable bas. The causal relaonshp beween energy consumpon and employmen n Illnos s examned usng he Toda-Yamamoo (1995) es for long-run causaly. The Toda-Yamamoo procedure avods he dffcules encounered n esng for Granger-causaly n regards o he power and sze properes of convenonal un roo and conegraon ess (Zapaa and Rambald, 1997). To mnmze he rss assocaed wh ncorrecly denfyng he order of negraon of he respecve me seres and he conegraon properes among he varables, he Toda-Yamamoo approach requres he esmaon of a VAR model n levels. The long-run causaly es s underaen by augmenng he correc order of he VAR,, by he maxmum order of negraon, d max, wh he es sascs for Granger-causaly porrayng he sandard asympoc dsrbuon. To nfer he maxmum order of negraon among he varables Augmened Dcey-Fuller (1979) and Phllps-Perron (1988) un roo ess are underaen as dsplayed n Table 1. nergy consumpon (C) s negraed of order one based on he un roo ess wh an nercep as well as nercep and rend. Illnos employmen ( ) s negraed of order one based on he un roo ess whou a rend erm and he Phllps-Perron un roo es wh nercep and rend, bu no for he augmened Dcey-Fuller un roo es wh nercep and rend erm. U.S. employmen ( US ) s negraed of order one based on he augmened Dcey-Fuller un roo es whou a rend erm and he Phllps-Perron un roo es wh an nercep and U.S. Zacharads (2007) and Bowden and Payne (2009) fnd ha he causal relaonshp beween energy consumpon by secor and real oupu are no unform across secors. Bowden and Payne (forhcomng) dfferenae beween renewable and non-renewable energy consumpon by secor fndng suppor for he growh hypohess for resdenal renewable energy consumpon and ndusral nonrenewable energy consumpon; he feedbac hypohess for commercal and resdenal non-renewable energy consumpon; and he neuraly hypohess for commercal and ndusral renewable energy consumpon. Payne (forhcomng) also fnds mxed resuls across dsaggregaed measures of fossl fuel consumpon and real GDP.

3 128 Payne rend erm only. In summary, he un roo ess sugges ha he maxmum order of negraon s one. Table 1. Un roo ess Varable ADF(C) ADF(C+T) PP(C) PP(C+T) c Δ a b c C ΔC a b a b US c c Δ US b b Noes: C denoes nercep and C+T wh nercep and rend n he respecve un roo ess. Sgnfcance levels denoed as follows: a(1%), b(5%), and c(10%). Lag lenghs for he ADF un roo ess deermned by Schwarz nformaon creron whle PP un roo ess deermned by Newey-Wes wh Barle ernel for bandwdh. Nex, he lag lengh for he respecve VAR models n levels was nally se a = 4. Several lag lengh crera were examned. The Schwarz and Hannan- Qunn nformaon creron yelded a lag lengh of one whereas he fnal predcon error and Aae nformaon creron yelded a lag lengh of wo. The (+d max) h order VAR models assocaed wh he wo dfferen lag lenghs were esmaed wh he lagged d max vecor gnored n esng for long-run causaly va a modfed Wald es. The equaons for he energy consumpon and employmen n Illnos are shown as follows wh he equaon for U.S. employmen suppressed o conserve space: 2 mploymen: C C US d US max nergy Consumpon: C d C max US d max C US 1 (1) 2 (2) where s Illnos oal nonfarm employmen; C s Illnos energy consumpon; and US s U.S. oal nonfarm employmen. The growh hypohess s suppored f here s undreconal Granger-causaly from energy consumpon o employmen ( 1 0 ) n quaon (1). The presence of undreconal Granger-causaly from employmen o energy consumpon ( 0 ) n quaon (2) provdes suppor for 1 he conservaon hypohess. Bdreconal Grangercausaly beween energy consumpon and employmen ( 1 0 and 0 ) n quaons (1) and (2) 1 confrms he feedbac hypohess whle he absence of Granger-causaly beween energy consumpon and employmen ( 1 0 and 0 ) n quaons (1) 1 and (2) denoes he neuraly hypohess. Table 2 presens he resuls of he Toda-Yamamoo long-run causaly ess beween he energy consumpon and employmen n Illnos. 3 In Panel A, he null hypohess ha energy consumpon does no Granger-cause employmen s reeced a he 1 percen sgnfcance level. However, one s unable o reec he null hypohess ha employmen does no Grangercause energy consumpon. The resuls n Panel B are comparable o hose repored n Panel A. These resuls favor he growh hypohess whereby an ncrease n energy consumpon has a posve and sascally sgnfcan mpac employmen n Illnos. 4. Concludng remars Unle prevous sudes on energy consumpon and real oupu for he U.S. economy as a whole, hs shor emprcal sudy examnes he relaonshp beween energy consumpon and employmen for a specfc sae, Illnos. The Toda-Yamamoo long-run causaly ess reveal a posve and sascally sgnfcan undreconal causaly from energy consumpon o employmen n Illnos over he perod 1976 o 2006 whch suppors he growh hypohess. On he surface he polcy mplcaons assocaed wh he growh hypohess are ha energy conservaon polces whch reduce energy consumpon may possbly reduce employmen. However, he mporance of energy consumpon n economc acvy should no overshadow he envronmenal consequences of heavy relance on fossl fuel consumpon. Moreover, one canno overloo he relevance of alernave renewable energy sources and mproved effcency n energy producon and consumpon paerns on he prospecs for fuure economc growh. 2 Usng eher lag lengh U.S. employmen was nsgnfcan n explanng Illnos energy consumpon or employmen. However, Illnos energy consumpon had small, bu sascally sgnfcan posve mpac on U.S. employmen. 3 The Lung-Box Q-sascs a 12 lags reveal he resduals are free of seral correlaon and he ARCH sascs ndcae he resduals do no exhb auoregressve condonal heerosedascy of he frs order.

4 nergy Consumpon and mploymen 129 Fuure research no he varous dsaggregaed energy sources whn each secor by sae may shed addonal nsgh on he relave mpac of energy consumpon paerns on economc acvy. Such effors would also provde valuable nformaon n he developmen of a more pruden and effecve energy and envronmenal polces for he U.S. Table 2. Toda-Yamamoo causaly ess of Illnos energy consumpon and employmen Panel A: Schwarz and Hannan-Qunn Informaon Creron, = 1 Null Hypoheses Modfed Wald Sascs Sum of Lagged Coeffcens nergy Consumpon does no Granger-cause mploymen [0.000] a mploymen does no Granger-cause nergy Consumpon [0.653] Panel B: Fnal Predcon rror and Aae Informaon Creron, =2 Null Hypoheses Modfed Wald Sascs Sum of Lagged Coeffcens nergy Consumpon does no Granger-cause mploymen [0.016] b mploymen does no Granger-cause nergy Consumpon [0.897] Noes: Modfed Wald ch-square sascs o es wheher he lags are equal o zero are dsplayed wh probably values n braces. The sum of he lagged coeffcens represens he summaon of he lags n he VARs excludng he lagged coeffcen wh he hghes order. Sgnfcance levels are as follows: a(1%), b(5%), and c(10%). References Abosedra, S. and H. Baghesan New evdence on he causal relaonshp beween Uned Saes energy consumpon and gross naonal produc. Journal of nergy and Developmen 14: Aarca, A.T. and T.V. Long nergy and employmen: A me seres analyss of he causal relaonshp. Resources and nergy 2: Aarca, A.T. and T.V. Long On he relaonshp beween energy and GNP: A reexamnaon. Journal of nergy and Developmen 5: Bowden, N. and J.. Payne The causal relaonshp beween U.S. energy consumpon and real oupu: A dsaggregaed analyss. Journal of Polcy Modelng 31: Bowden, N. and J.. Payne. (forhcomng). Secoral analyss of he causal relaonshp beween renewable and non-renewable energy consumpon and real oupu n he U.S. nergy Sources, Par B: conomcs, Plannng, and Polcy. Cheng, B.S An nvesgaon of conegraon and causaly beween energy consumpon and economc growh. Journal of nergy and Developmen 21: Chou-We, S.Z., C.F. Chen, and Z. Zhu conomc growh and energy consumpon: vdence from lnear and nonlnear Granger causaly. nergy conomcs 30: Chonanawa, J., L.C. Hun, and R. Perse Causaly beween energy consumpon and GDP: vdence from 30 OCD and 78 non-ocd counres. Surrey nergy conomcs Dscusson Paper Seres 113. Chonanawa, J., L.C. Hun, and R. Perse Does energy consumpon cause economc growh?: vdence from a sysemac sudy of over 100 counres. Journal of Polcy Modelng 30: Dcey, D. and W.A. Fuller Dsrbuon of he esmaors for auoregressve me seres wh a un roo. Journal of he Amercan Sascal Assocaon 74: nergy Informaon Admnsraon. Sae nergy Profles. rol, U. and.s.h. Yu Tme seres analyss of he causal relaonshps beween US energy and employmen. Resources and nergy 9: rol, U. and.s.h. Yu Specral analyss of he relaonshp beween energy consumpon, employmen and busness cycles. Resources and nergy 11: wng, B.T., R. Sar, and U. Soyas Dsaggregae energy consumpon and ndusral oupu n he Uned Saes. nergy Polcy 35: Glasure, Y.U. and A.R. Lee Relaonshp beween U.S. energy consumpon and employmen: Furher evdence. nergy Sources. 17: Glasure, Y.U. and A.R. Lee The macroeconomc effecs of relave prces, money, and federal spendng on he relaonshp beween U.S. energy consumpon and employmen. Journal of nergy and Developmen 22: Kraf, J. and A. Kraf On he relaonshp beween energy and GNP. Journal of nergy and Developmen 3: Lee, C The causaly relaonshp beween energy consumpon and GDP n G-11 counres revsed. nergy Polcy 34: Mahadevan, R. and J. Asafu-Adaye nergy consumpon, economc growh and prces: A reassessmen usng panel VCM for developed and developng counres. nergy Polcy 35:

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