Causality between energy consumption and output growth in the Indian cement industry:

By Sabuj KumarMandal , S.Madheswaran

Introduction: Energy is considered a basic building block for almost all economic activities. Future economic growth crucially depends on the long-term availability of energy in increasing quantities. However, energy use in most cases generates undesirable emissions with severe detrimental impacts on the environment, including climate change. Therefore, most of the emerging economies face dual challenges. On the one hand, for potential future growth, countries are likely to experience a rapid growth in energy demand; on the other hand, they have to meet their energy requirements in an environmentally friendly way to protect the global environment from the impacts of climate change. In an Indian context, the empirical findings on the causal relationship between energy consumption and economic growth have been mixed or conflicting. However, one common limitation of the existing studies on this causality issue is that almost all the studies have been conducted at the aggregate economy level. an economy consists of different sectors, for example, agriculture, industry and service sectors. Dependence on energy varies from one sector to another, and overtime, the importance of a specific sector may change Therefore, the relationship between energy consumption and real GDP may not be uniform across the sectors, whereas studies conducted at the aggregate level implicitly assume such a uniform relationship between energy consumption and GDP within the industrial sector there are high- energy intensive industries, whereas others are less energy intensive. this is the first study dealing with the issue of energy-growth causality in a specific industrial sector applying the recently developed panel vector error correction model. Data used: The cement industry has become the second largest in terms of cement production in the world. However, this huge growth in cement production has been associated with higher utilization of energy. This energy consumption is mostly in the form of coal utilization . The data set consists of a balanced panel of 18 major Indian cement-producing states over the period 19791980 to 20042005. Output is measured by the value of ex-factory products and by-products,which was deflated by the wholesale price index. The capital input is measured as a stock by taking the value of fixed capital and deflating it by the wholesale price index for machinery and machine tools.Labor is measured by the total number of persons employed.Energy was measured in terms of expenditure on fuels deflated by the wholesale price index for fuel, power, light and lubricants. Similarly,the material input was measured by the expenditure on materials and deflated by the wholesale price index for non-metallic mineral products.We have divided annual aggregate data on all inputs and outputs by the total number of factories in a particular state in a particular year to obtain information on the variables of a typical firmwithin each state. Result: This result implied that there is both a short- run and long-run bi-directional causality between energy consumption and output growth in the Indian cement industry.

The relationship between disaggregate energy consumption and industrial production in the United States: An ARDL approach: By Ramazan Sari , Bradley T. Ewing , Ugur Soytas
Introduction Energy plays a unique role in the supply chain as it is both a final good for end-users as well

as an input into the production processes of many businesses. The autoregressive distributed lag (ARDL) approach is used to test for the existence of a relationship between the disaggregate energy data and industrial production (i.e., real output) in level form. It is well known that economic systems may exhibit feedback effects or bi-directional causality. In fact, a number of researchers have reported that the energy-income relationship may be characterized by bi-directional causality. Data and methods and findings: Monthly data for the United Sates over the period of 20012005 is used. Author has used Industrial production, base year 2002, employment in thousands, coal, fossil fuels, conventional Hydroelectric power, solar energy, wind energy, natural gas, wood, and waste consumption. The ARDL method involves three steps. The first step is to test for the presence of cointegration among the variables by employing the bounds testing procedure. This test can identify the long run relationship with a dependent variable followed by its forcing variables. The second step is to estimate the coefficient of the long run relationships identified in the first step. The long run test results reveal that industrial production and employment are the key determinants of fossil fuel, conventional hydroelectric power, solar, waste and wind energy consumption. In contrast, neither employment nor industrial production is found to have a significant long run impact on consumption of natural gas and wood energy. The industrial production equation indicates that neither employment nor coal energy consumption has a significant long run impact on real output. The long run impact of industrial production on energy consumption is generally positive as expected, with the sole exception being a negative impact on solar energy. Mixed results are obtained for the energy and employment relationship. Usually the relationship is negative and significant indicating that energy use and employment are substitutes in the production processes. However, in wood consumption the relationship is positive because labor intensive technologies tend to require the wood use. The third step is to estimate the short run dynamic coefficients. In terms of signs and significances, the results are generally consistent with the long run findings. However, for the model including natural gas in which we found no significant long run relationship, we do find significance in the short run. Once again, the relationship between employment, industrial production and conventional hydroelectric power, solar, waste, and wind energy use are found to be statistically significant. Employment seems to negatively affect the consumption of energy from all sources, except for solar energy. The sign is reversed for the coefficient of industrial production, solar energy again being an exception. The reason may be due in part to technology as solar power does not require turning of turbines to produce electricity.

Disaggregate energy consumption and industrial production in South Africa By Emmanuel Ziramba:
Introduction
In this paper disaggregate forms of energy is used because the use of aggregate energy data does not capture the degree or extent to which countries depend on various energy resources. Further, the use of aggregate energy data may not be able to identify the impact of a specific energy type on industrial output. The use of disaggregate data allows for comparisons of the strengths of causal relationships by energy source. In this study, we examine the link between disaggregate energy use, employment and industrial output in South Africa, employing the autoregressive distributed lag (ARDL) approach. South Africa has a well-developed energy supply and production system. The country has large endowments of coal resources. It has, however, limited natural gas and crude oil production and consequently the bulk of its crude oil is imported. Renewable energy comprises biomass and natural processes that are replenished. Renewable energy plays a limited but significant role in power generation, particularly hydroelectric power generation. The countrys abundant sunshine is only beginning to be tapped in more remote areas for electricity generation for domestic and institutional applications. The three major energy-consuming sectors are industry, residential and transportation. In 2002 these three sectors accounted for 80.4% the total energy demand.

Data used: Data and unit root test Annual data for the period19802005 for the various forms of energy consumption. Empirical results The empirical results indicate a long-run relationship among industrial production, electricity consumption and employment. This result is not surprising, since industrial energy consumption accounts for up to 63% of total electricity consumption. Another long-run relationship was observed among industrial production, oil consumption and employment. This could be explained by the fact that oil is a significant input in industrial production. There was no long-run relationship in models involving coal consumption. This could be explained by the fact that coal is not used directly in the production process but to generate electricity (with about 90% of electricity being generated from coal, see Davidson et al., 2002, p. 9) which is then used by industry. Granger-causality There was bi-directional causality between oil consumption and industrial production and no causality for the other two energy sources. There is also evidence of unidirectional causality from employment to electricity consumption, and from coal consumption to employment. Conclusion The bi-directional causality between oil consumption and industrial production found in this paper has major implications for energy policy in South Africa. This result implies that increased industrial production may require more oil resources, while at the same time more oil resources may induce greater industrial production. Oil consumption and industrial production comple- ment each other, and any oil conservation policies may adversely affect industrial production.

Disaggregate energy consumption and industrial output in the United States

By Bradley T. Ewinga, Ramazan Sarib, Ugur Soytas

Introduction This paper investigates the relationship between disaggregate energy consumption and real output in the United States. In fact, most studies in this line of research employ aggregate energy data. One shortcoming with the use of aggregate energy data is that countries may depend on different energy resources and, therefore, it is not possible to identify the impact of a specific type of energy with aggregate data. These concerns have encouraged us to investigate the relationship between disaggregate energy consumption and industrial output in order to identify the impact of different energy sources on income in the US. Energy production and consumption trends in the US Petroleum comprises the largest imported energy source for the US and, as such, any disruption in oil production in other parts of the world has the potential to significantly affect the US economy. Diversification of energy is generally considered important since it would lessen the dependence on foreign energy and thus dampen the effects of oil disruptions. Of course, more efficient energy production and improvements in demand management practices may help smooth price fluctuations. For this reason, potential suppliers such as those found in the renewable sector or in deregulated markets play a significant role in meeting the future energy requirements of the US. However new technologies are developed and adopted as market signals dictate. The results of the present study provide information on at least one market signal, the relative role that different sources may play in explaining the forecast error variance of output. Thus, the results may have particular importance for establishing research and development related policy in the US. Data and method: Seasonally adjusted monthly data on industrial production index where 2002 is the base year is used, in thousands, total energy consumption, total renewable energy ,coal fossil fuels , conventional hydroelectric power, solar energy, wind energy, natural gas , wood , alcohol , geothermal and waste consumption of the US over the period of 20012005. This period was chosen based on data

availability, so as to obtain a comparable sample period for all energy consumption series. All energy use data are in trillion British thermal units (Btu). Findings: Total energy explains about 9.5 percent of the forecast error variance of industrial production at all horizons, including at initial impact. The latter finding indicates that energy and output are contemporaneously correlated and is in line with the fact that energy is a major component of Gross Domestic Product and is both a good, in the traditional sense, and an input. The impacts of coal, natural gas, and fossil fuel on the variation of industrial production are the highest of any of the energy sources and indicate the economys greater reliance on these sources.