Author : Maxensius Tri Sarnbodo & Tatsuo Oyama
Abstract :
This paper has two objectives. The first is to re-investigate the relations between economic growth and energy consumption in Indonesia. The second is to analyse the consistency between several econometric techniques in explaining the causality test. This paper is different from previous studies in five ways. First, we expanded the time period of analysis. Second, we applied Bayesian techniques to obtain the third variable for trivariate analysis. Third, we applied bivariate and trivariate causality analysis. Fourth, we conducted the Hodrice-Prestott (HP) filter technique and applied the causality test on the cyclical components. Finally, we conducted variance decomposition analysis. Although the Bayesian analysis showed that energy consumption is a good explanatory variable for economic growth, and vice versa, we did not find any short-run and long-run relations in the cases of
bivariate and triuariate analysis. Variance decomposition analysis also supported no causal relation, even after we changed the Cholesky order. By applying the HP filter, the results also supported the neutrality hypothesis between energy consumption and economic growth. The results of our study imply that the Indonesian government needs to implement energy efficiency programs more broadly in all economic sectors.
Keywords: Economic growth, Energy consumption, Bayesian, Bivariate, Triuariate