The role of globalization in energy consumption: A quantile cointegrating regression approach

Abstract

This paper examines the quantile behavior of the relationship between the nuances of globalization and energy consumption while incorporating capital and economic growth in case of top-two most globalized countries – Netherlands and Ireland - by employing the recently developed quantile autoregressive distributed lag (QARDL) model of Cho et al. (2015). The model is estimated using quarterly data over the period 1970Q1-2015Q4. The results indicate that the relationship is quantile-dependent, which may reveal misleading results in studies using traditional analyses that address the averages. The Wald test confirms our findings by rejecting the null hypothesis of parameter constancy for both the Netherlands and Ireland. The changes in energy consumption are more responsive to past levels and past changes in globalization than the adjustment provided by the error-correction method (ECM). Interestingly, the findings indicate that globalization is positively correlated with energy consumption in the long-term for the two countries. Furthermore, globalization shares a robust long-term relationship with energy consumption. Energy consumption is strongly related to globalization in the long-term. However, the short-term effects of globalization on energy demand are limited for those countries. Important policy implications are then suggested based on the empirical results.