Nexus among Energy Consumption, Financial Development, Trade Openness and Economic Growth: Evidence from South Asian Countries

Abstract

Energy is the economy's oxygen and the lifeblood of progress, particularly in developing economies that are undergoing widespread industrialization. In growth theories, it is frequently suggested that energy, like labor and capital, should be regarded as inputs. The current study aims to look into this contrivance in the context of South Asian countries. Panel data has been utilized for Pakistan, Bangladesh, India, Sri Lanka, and Nepal. The analysis has been done through theoretical reasoning, descriptive statistics, panel unit root tests, panel co-integration, panel fully modified ordinary least squares (FMOLS), and panel homogeneous causality test. Various factors have been used as determinants of energy consumption. The results of the panel unit root test show that the variables are integrated of order I(1) which makes panel co-integration a relevant technique for the econometric analysis. For robustness check, two tests of panel co-integration namely padroni co-integration, and the Johansen Fisher Panel Co-integration test, have been used. The results of panel co-integration show that variables have a long-run relationship. To find the long-run coefficients of the variables, panel FMOLS have been applied. The results of the FMOLS show that consumption of energy, trade openness, and financial development all altogether affect economic growth in the countries under consideration. The results of panel homogenous causality uncover that economic growth and energy consumption have unidirectional causality, with energy consumption stimulating economic growth.