Energy consumption and production relationship

energy consumption and production relationship

and short term there is a nonlinear and inverse relationship between energy consumption in residential and commercial sectors and gross domestic production. The findings indicate a time-varying relationship between energy . Equation is a production function with EC as energy consumption. The relationship between energy consumption and economic growth is and the industrial production increased rapidly because of the effective financial.

For each of the 10 Latin American countries and for the regional subsample panelthe long-run elasticities of the impact of energy consumption on real GDP indicate a bidirectional, long-run relationship between real GDP and energy consumption. Moreover, a 1 percent increase in energy consumption increases real GDP by 0. As mentioned previously, these results represent bidirectional causality, because when long-run relationships are estimated using cointegration tests, the magnitude positive or negative of the coefficients represents the direction of the causality Granger, ; Engle and Granger, For example, Lee and Chang explore the direction of causality between energy consumption and GDP through a dynamic panel in a sample of developed and developing countries.

Panel cointegration slope estimates long-run elasticities On a per-country basis, the cointegration results show that for all countries the slopes have a positive sign and are statistically significant.

In other words, energy consumption has a positive impact on GDP. In the cases of Argentina, Brazil and Chile, energy consumption exerts a positive and elastic effect on real GDP, whereas in the cases of Colombia and Paraguay energy consumption has a positive but smaller effect on real GDP.

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Regarding the relationship between real GDP and energy consumption, these findings show that for all countries, GDP has a positive effect on energy consumption. This result demonstrates compliance with the feedback hypothesis, which holds that there is a bidirectional relationship between these two variables.

Other studies such as Narayan et al. Table 9 presents these authors' results. We observe that the results of Narayan et al. However, our results differ from the estimates shown in Table 9particularly for Colombia, but these results are not statistically significant. Finally, the results of Lee are similar to our estimates, but differ in the case of Venezuela. Other results of long-run elasticities The results shown in Table 8 can be understood by analyzing the evolution of productive economic structures of South American countries, i.

Table 10 shows the value added for each sector of the economy as a percentage of GDP for the 10 countries included in the study. We can see that in recent decades the primary sector represents a smaller share of a nation's GDP and that secondary and tertiary sectors represent larger GDP shares.

Relation between Production and Energy Consumption

Argentina, Brazil and Chile have the largest elasticities reported in Table 8. This signifies that these countries' economies are goods-intensive in the secondary and tertiary sectors industry and services. In the cases of Paraguay and Colombia, countries with lower elasticities, we can see that during the s and the past decade, both countries reduced the share of their primary sectors and increased participation of their tertiary sectors.

Value added by economy sector In particular, Table 10 demonstrates that countries with a high GDP share generated in the primary sector in relative terms in the s and a low share in the s should have low elasticities in the relationship between energy consumption and GDP.

Conversely, countries whose GDP share from the primary sector has declined significantly should show high elasticities in the relationship between energy consumption and GDP. One exception to this behavior is Argentina, which saw a small change in relative terms.

Relation between Production and Energy Consumption | Zenatix

Our evidence reflects the existence of panel stationarity for Latin American countries, and our panel attests to bidirectional causality between energy consumption and GDP in all sample countries. The literature investigates the impact of energy consumption on GDP for many countries using different techniques and methodologies.

The results of these studies show that different methodologies lead to confusing and contradictory conclusions about this relationship. This paper estimates the elasticity of the long-run relationship of energy consumption-GDP and GDP-energy consumption for 10 countries in Latin America during the period from to We employ Pedroni'spanel cointegration test to determine if a long-run relationship exists between the variables in equations 1 and 2.

By using a cointegration test for panel data developed by Westerlundwhich accounts for possible cross-sectional dependence between countries and any existing structural breaks in the long-run relationship, we identify the long-run elasticities. In the sections above, we provide empirical evidence about policy maker's abilities to design and implement programs to promote energy conservation and efficiency.

In this case, because there is a long-run relationship between energy consumption and GDP, it is understood that in the long run energy generates economic growth for Latin American countries. In the cases of Bolivia, Colombia, Ecuador, Paraguay and even Peru and Uruguay, the elasticity of energy consumption is low below the regional average.

energy consumption and production relationship

In these countries, policy makers could implement energy conservation programs with low negative impacts in the short run. However, if there is truth to the feedback hypothesis, which suggests that energy consumption and GDP are interrelated and complementary over time in a bidirectional, causal relationship, then policies that promote the energy efficiency do not negatively affect GDP. In addition, according to the results of our panel stationarity tests, if shocks in energy consumption and GDP are temporary, stabilization policies will power long-lasting effects in the countries of Latin America.

Finally, the result of our cointegration test suggests that energy consumption and GDP are endogenous variables in Latin American countries at the rate of the bidirectionality of causality. Another interesting result is that the methodology is better than those used previously, in the sense that it reflects the presence of structural breaks, controls endogeneity and includes the presence of cross-correlation between the countries concerned.

Countries such as Argentina, Brazil and Chile are energy-dependent, which means that policies that seek to conserve energy in the long run would have disastrous results on their economic growth.

Production and Consumption of Energy

Additionally, this dependence on the part of some Latin American countries indicates the need to diversify energy sources, since those countries must weigh the need for sustainable economic growth against the environmental costs associated with excessive energy consumption. Although it is difficult to make definitive conclusions about the energy policy of Latin American countries based on the empirical results presented in this paper, these findings serve to explain certain tools that can be used in conjunction with other studies in the decision-making process.

Future research could include variables such as physical capital, human capital and labor to estimate the long-run elasticities, following the methods of Mankiw, Romer and Weil This procedure would account for the fact that these factors of production are just as important as energy consumption.

In addition, future research could extend the analysis to short-term relationships with a VEC model, as this model provides evidence that the series are cointegrated. Additionally, future research could evaluate energy efficiency policies not on the basis of energy conservation measures, but rather from the perspective of the efficiency of energy use in production processes. Long"On the relationship between energy and GNP: A reexamination," Journal of Energy Development 5: Baghestani"New evidence on the causal relationship between U.

Perron"Computation and analysis of multiple structural change models," Journal ofApplied Econometrics HinckleyBootstrap methods and their application. With production data, the energy consumed at any stage during the process can be normalized on units of production at the same stage. Performing this exercise continuously with a fixed time frequency will give a relation between units of production and energy consumed.

Such production and energy correlation can be used by the top management to do bottom line analysis on how to improve the overall productivity while keeping the energy cost low.

Taking the time frequency of 1 hour, energy consumed in 1 hour window and number of units produced during the same period can be accounted. This will give 24 windows for one day but we also have to take plant shut hours into consideration as during these times, it can result in erroneous readings. Looking deeper into such hours and capturing the root cause will lead to trapping energy wastages and will improve plant efficiency.

energy consumption and production relationship

Doing such an analysis on regular basis, a baseline can be drawn for the whole manufacturing cycle. After attending the initial variation in energy consumed per unit at different time windows and achieving the best possible number for each time, the mean and standard deviation for each window can be taken as its baseline.

Using this baseline, any deviation from it can be recorded to take counter measures. At Zenatix, we integrate the energy meters of the facility with our software system which can record high resolution power data. Energy consumed within a 1 hour window can then be calculated on an on-going basis.