The Causal Relationship between Energy Use and Economic Growth in Switzerland

Abstract

This paper investigates the relationships between energy consumption and economic growth in Switzerland over the period 1950-2010. We apply bounds testing techniques to different energy types separately. Robustness tests are performed by including additional variables and restricting the analysis to the period after 1970. The results show that there exist robust long run relationships going from real GDP towards heating oil and electricity consumption. The relationship between heating oil and GDP is in fact bidirectional, although weaker from heating oil towards GDP than in the reverse direction. When investigating the period 1970-2010 only, the estimate of the long run income elasticity of electricity consumption loses statistical significance and that for heating oil becomes negative. Those results imply a possible decoupling between GDP growth and energy consumption, so that energy conservation policies are not necessarily expected to have a negative impact on Swiss economic growth.

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