What is it about?

This paper is a comprehensive note on causation and correlation as far as energy economics is concerned. Understanding the nature of the inter-relationship between energy use and economic development (nations' affluence or welfare) is of great importance with significant country-specific policy implications. This is about an empirical and contextual investigation of the complex nature of the energy-welfare nexus. In most cases, though, it is practically reduced to studying energy-output, energy-economy, or energy-growth nexus. The policy implications may vary from country to country, motivating each country's development strategies differently.

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Why is it important?

We first review deeper conceptual and philosophical concerns towards causation and correlation to make a clear distinction between true and spurious causation/correlation. We then develop a novel method to exclude spurious measures from the true ones. We also statistically test several hypotheses regarding the relationship between energy use and wealth creation as captured by income groups. We could not confirm a definite consistency in pair-wise causation between energy and welfare variables at the country levels and across distinct estimation periods. Nor could we denote any strong correlation between energy variables and wealth creation. Causation results are not surprising as previous studies asserted similar remarks. However, this study firmly says that these are mainly due to the circularity and non-linearity of the inter-relationships between energy and welfare variables over time, as new institutions might influence development processes


I highly recommend this article to every economics and statistics student.

Dr Reza FathollahZadeh Aghdam
Sultan Qaboos University

Read the Original

This page is a summary of: On the relationship between energy and development: A comprehensive note on causation and correlation, Energy Strategy Reviews, March 2023, Elsevier, DOI: 10.1016/j.esr.2022.101034.
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