Abstract:
This paper empirically analyses the causal linkages between coal consumption and economic
growth in the BRICS countries (Brazil, Russia, India, China and South Africa) using annual
data from 1985 to 2009. Due to the common directions and principals of the BRICS countries
with regards to energy, the employed panel causality methodology is chosen to account for
both cross-section dependence and heterogeneity across countries. Empirical results provide
evidence of no causal relationship between the two variables; suggesting that neither coal
consumption nor economic growth is sensitive to each other. While this finding vindicates the
neutrality hypothesis overall for the BRICS countries, the individual country results provide
support for a unidirectional causality running from coal consumption to economic growth for
China; the opposite for South Africa and bidirectional for India. Policies to reduce coal
consumption will have a detrimental effect to India’s economy. However, in the rest of the
countries, policy makers should aim at step further from fossil-fuel generation – and
specifically coal – of energy without the potential risks of having an impact to the economic
growth and development.
