Explaining the (non-) causality betweenenergy and economic growth in the U.S.A multivariate sectoral analysis

The rapidly growing literature on the relationship between energy consumption and economicgrowth has not univocally identi…ed the ‘real’causal relationship yet. We argue that bivariate mod-els, which analyze the causality at the level of the total economy, are not appropriate — especiallyin cases where both variables do not cover the same scope of economic activity. After discussingappropriate pairs of variables, we investigate Granger causality between energy consumption andGDP in the U.S. for the period from 1970 to 2007 for three sectors — industry, commercial sector,transport as well as for the total economy. The choice of additional variables is based on major…ndings from the Environmental Kuznets curve literature and its critical re‡ections. Using therecently developed ARDL bounds testing approach by Pesaran and Shin (1999) and Pesaran et al.(2001), we …nd evidence for long-run Granger causality for the commercial sector, in case energy isthe dependent variable, as well as bi-directional long-run Granger causality for the transport sec-tor. We conclude that controlling for trade as well as increasing energy productivity signi…cantlyimproves the …t of several extensions of the bivariate model.