The causal relationship between coal consumption and economic growth in the BRICS countries : evidence from panel-Granger causality tests

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.