Development and energy consumption

Economic growth and energy use are an integral part of level of development. According to International Energy Agency’s (EIA's) recent study in 2013, world energy consumption will grow by 56% between 2010 and 2040 and much of this increase will be attributable to non-OECD countries experiencing strong economic growth. The two major concerns of environmentalists and economists are global warming and the prospective depletion of nonrenewable energy resources that accompany economic development. Therefore, comprehending the relationship between development and energy consumption is crucial for designing successful ecological and energy policy. Existing research in this area differs in their findings especially with reference to the direction of the relationship between economic growth and energy use. Some studies conclude that per capita energy consumption increases at a faster rate in early stages of development, reaches a peak and then either levels off or declines. Most of these studies use country specific or region specific data and measure development strictly from an economic perspective namely using GDP per capita to capture the level of development. The aim of this research is to empirically examine the relationship between energy consumption and the level of development from a broader perspective; we include economic indicators as well as social indicators of development in our study. To that extent, we use real GDP per capita, percentage of urban population, literacy rate, infant mortality rate and poverty gap as independent variables. The dependent variable is the energy use measured by the kilogram of oil equivalent per capita. We further investigate the connection between energy use and the level of development by estimating a model with the Human Development Index as an alternative measure for level of development. We hypothesize that initially development will be associated with high energy consumption and after a certain threshold level, it will slow down, possibly portraying an inverse U shaped curve.  Moreover, the exact trajectory will depend on country specific factors. Our analysis is conducted using panel data collected from the World Bank and United Nations database and contains information on 120 countries between 1981 and 2011. Finally, we will investigate if the conclusions differ at different stages of development by examining selected developed, developing and less-developed countries. The findings will be valuable in forecasting how development might affect energy use in emerging economies such as the BRICS countries and possible consequences in mitigating the outcome of agreed upon ecological policies in developed countries.