The Long-Run Causal Relationship between Economic Growth,

Transport Energy Consumption and Environmental Quality

in Asian Countries

Samia Nasreen
Govt. College Women University Faisalabad, Faisalabad
Mounir Ben Mbarek
University of Management and Economic Sciences of Sfax, Tunisia
Muhammad Atiq ur Rehman
University of the Punjab Lahore, Lahore
Overview

 Introduction
 Methodology
• Model
• Data
• Empirical Methodology
 Results and Discussions
 Policy Implications
Introduction

• Rapid economic growth, the process of industrialization, urbanization, population growth

and the growing specialization have accelerated the demand for transport sector. The
expansion in transport demand has put pressure on the country’s reserves of oil and gas.
More than 90% of transport energy consumption is dependent on oil and oil related
products (IEA, 2017).
• Transport sector as the largest consumer of petroleum and other liquid fuels, is a major
cause of increase in Greenhouse gases (GHG) and other pollutants in atmosphere.
• The International Energy Agency (IEA, 2017) estimates show that the transport sector
accounts for about 25% global CO2 (carbon dioxide) emissions and its contribution
relative to other sectors is projected to increase substantially in the near future.
Conti……
• Asia is the region of diverse group of countries, with different levels of economic
prosperity and energy resource endowment. Transport sector in Asia is rapidly growing
and the energy consumption is expected to rise at the rate of 2.9% per annum till 2030.
• China is the largest consumer of transport energy (12.3 quadrillion Btu) followed by India
(3.3 quadrillion Btu).
• Like India and China, the other economies of the region also show substantial increase in
transport energy demand from 5.5 quadrillion Btu in 2008 to 8.6 quadrillion Btu in 2017.
• CO2 emissions from transport sector are increasing very rapidly with a growth rate of
2.8% per year. This growth indicates that the total share of CO2 emission will rise from
12.5% in 2005 to 13.7% in 2030.
Significance of the Study

• Number of empirical studies are available on the nexus between energy consumption,
economic growth and environmental quality (e.g., Ajmi et al., 2015; Heidari et al. 2015;
Arvin et al., 2015; Nasreen et al., 2017; Saidi et al. 2018; Nasreen et al., 2018).
• There are only a few studies in the case of Asian countries (Timilsina and Shrestha 2009;
Chandran and Tang, 2013; Mustapa and Bekhet, 2015) that examine a link between
transport energy and environmental quality.
• Our study is an attempt to fill the gap in energy-environment literature by examining the
causal link between transport energy consumption, environmental quality and income
growth in the case of Asian countries.
• We use latest panel data methodology that efficiently address the issue of heterogeneity
and cross-country correlation.
 Methodology
• Econometric Model
• Following, Hossain, (2011) and Chandran and Tang, (2013) the econometric model is

EQit = γ 0 + ϕ1EG it + ϕ 2 TE it + ϕ3 EPit + µi + ϖ it

Variables Description Data Sources

EQ Environmental quality proxied by per capita CO2 emission World Development Indicators by
in metric tons World Bank
EG Economic growth measured by per capita GDP in World Development Indicators by
constant 2010 US $ World Bank
TE Transport energy consumption measured by per capita International Energy Agency
transport energy consumption in kilo tons of oil
equivalent
EP Energy prices are measured by real oil prices (simple British Petroleum's 2018 Statistical
average of three spot prices, West Taxes Intermediate, Review of World Energy
Dated Brent and Dubai Fateh deflated by country’s
consumer price index) in US$ per barrel
Conti…….

Data
• Used from 1980 to 2017
Countries
• 18 Asian countries
Empirical Methodology

• Cross-sectional Dependence Test

Pesaran (2004) Cross-sectional Dependence Test
• Panel Unit Root Test
Bai and Carrion-i-Silvestre (2009) panel unit root test
• Panel Cointegration Test
Westerlund and Edgerton (2008) panel cointegration test
• Long-run Estimators
Common correlated effects mean group (CMG) estimators developed by Pesaran (2006) and
Augmented Mean Group (AMG) estimators developed by Eberhardt and Teal (2010)
• Panel Long-run Granger Causality
Granger causality approach developed by Holtz et al., (1988) and applied by Liddle and Lung (2013)
Results and Discussions

Table-1: Cross-Sectional Dependence Test Results

Variables Statistics P-value abs
38.81 0.004 0.597
99.47 0.000 0.817
86.97 0.000 0.740
47.10 0.000 0.421

Notes: Average absolute values (abs) shows correlation coefficient

Conti………

Table-2: Panel Unit Root Test Results

Variables
Constant and Trend (No break)
-1.064 -0.515 -0.253 -0.738
0.288 0.648 -1.120 0.543
21.51 25.96 14.76 20.61
Trend Shifts
0.843 0.338 0.046 0.649
-0.540 -0.772 -0.149 -0.352
16.75 21.56 18.44 16.98
-2.843* 2.065** -1.970** -3.132*
3.054* 4.873* 2.643* 4.738*
40.36* 57.72* 46.09* 60.02*
Note: Critical values for the rejection of null hypothesis of unit root at *1%, **5% and ***10% are
2.326, 1.645 and 1.282 respectively for both Z and Pm while for P test, chi-squared critical values
are 40.28, 33.92 and 30.81 respectively
 Table-3: Westerlund and Edgerton Cointegration Test Results
Model No shift Mean shift Regime shift
Model No shift Mean shift Regime shift
-3.432 -4.540 -5.919
P-value 0.045 0.001 0.000
-1.647 -2.782 -2.802
P-value 0.089 0.023 0.019
 Table 4: Long-run Heterogeneous Estimates
(Dependent Variable: EQ)
Country Variables CMG AMG

Pakistan Coefficient 0.776 0.013 -0.345 1.903 0.256 -0.321

Probability 0.005 0.058 0.065 0.000 0.032 0.098
India Coefficient 0.541 0.444 -0.547 1.071 0.954 -0.430
Probability 0.001 0.019 0.005 0.004 0.050 0.650
Bangladesh Coefficient 0.706 0.230 -0.214 0.084 0.054 -0.123
Probability 0.070 0.020 0.087 0.963 0.091 0.439
Indonesia Coefficient 0.463 0.014 -0.830 1.536 1.086 -0.765
Probability 0.401 0.069 0.076 0.000 0.021 0.054
Iran Coefficient 0.247 -0.265 -0.650 1.575 1.320 -0.992
Probability 0.097 0.397 0.004 0.068 0.091 0.231
Japan Coefficient 0.320 1.053 -0.478 1.314 1.001 -0.864
Probability 0.201 0.003 0.007 0.010 0.003 0.044
Jordan Coefficient 0.597 0.748 -0.659 1.677 0.529 -0.213
Probability 0.012 0.000 0.054 0.012 0.067 0.091
Table 5:conti…….
Country Variables CMG AMG

Malaysia Coefficient 0.516 -0.101 -0.490 0.059 0.114 -0.231

Probability 0.000 0.082 0.098 0.910 0.870 0.438
Nepal Coefficient 0.124 0.450 -0.129 0.754 1.094 -0.745
Probability 0.029 0.469 0.959 0.000 0.004 0.009
Philippines Coefficient 0.659 0.510 -0.553 0.755 0.455 -0.057
Probability 0.260 0.012 0.080 0.525 0.097 0.665
Sri Lanka Coefficient 0.562 0.107 -0.531 0.849 0.669 -0.032
Probability 0.054 0.432 0.000 0.680 0.765 0.229
Thailand Coefficient 0.385 0.328 -0.233 1.744 0.654 -0.869
Probability 0.026 0.076 0.000 0.172 0.046 0.320
Vietnam Coefficient 0.690 0.920 -0.578 0.412 0.878 -0.992
Probability 0.005 0.054 0.005 0.022 0.084 0.567
Singapore Coefficient 0.967 0.345 -0.443 0.785 0.540 -0.969
Probability 0.010 0.003 0.067 0.007 0.060 0.084
Syria Coefficient 0.779 0.508 -0.689 1.065 0.753 -0.561
Probability 0.008 0.040 0.091 0.010 0.062 0.099
Korea Dem. Coefficient 1.097 0.135 -0.589 1.413 1.490 -0.689
Probability 0.000 0.075 0.010 0.000 0.004 0.020
Table 5:conti…….
Country Variables CMG AMG

Israel Coefficient 0.801 0.769 -0.833 0.944 0.652 -0.543

Probability 0.093 0.540 0.349 0.667 0.840 0.999
China Coefficient 0.721 0.376 -0.491 1.798 0.785 -0.633
Probability 0.002 0.001 0.024 0.016 0.005 0.090
Panel statistics Coefficient 0.576 0.464 -0.226 0.630 0.442 -0.382
Probability 0.001 0.000 0.010 0.006 0.005 0.009
 Table 6: Panel Causality Results
Independent Variables

Short-run causality Long-run

Dependent causality
Variables

∆EQit ∆EGit ∆TEit ∆EPit ECTt −1

- 3.731 4.982 3.879 -0.307**
∆EQit (0.023) (0.000) (0.014) [2.360]

1.253 - 1.672 4.995 -0.356*

(0.846) (0.324) (0.000) [3.051]
∆EGit
0.965 4.390 - 3.659 -0.262*
(0.648) (0.006) (0.036) [2.104]
∆TEit
1.659 2.991 0.950 - 0.182**
(0.237) (0.071) (0.533) [2.531]
∆EPit
Policy Implications

• There should be global coordination to promote clean and sustainable transportation

system by encouraging the smart safe driving techniques that may be considered as a
significant fuel saving technique.
• The energy efficient technology can play a critical role in both achieving transport energy
security, and meeting environmental protection and economic objectives.
• Globalization can play a significant role in generating and transferring resource saving
and cleaner production technology from developed to developing countries.
• At national level, Asian countries need to reform their domestic policies that have
negative environmental impacts. They further need to correct their existing market failure
through economic instruments rather than depend on economic integration and trade
liberalization.
Thank you!