Capital Formation, Energy Consumption and Economic Growth in Brazil: An ARDL Bound Testing Approach and Granger Causality

Abstract

This study analyses the short and long run impact of trade, energy consumption and capital formation on economic growth in Brazil. The time series considered is from the period of 1970-2014. By employing ARDL bound testing approach, the long and short run effects are estimated. With Error Correction model, the findings provide that gross capital formation and energy consumption has established a long run relationship with economic growth. In short run, though slightly but exports, along with energy consumption and capital formation are positively related with economic growth in Brazil. The results of granger causality exhibit a weak but bidirectional causality between gross capital formation and economic growth whereas, gross capital formation and economic growth are unidirectional granger causing energy consumption respectively. The study implies that policy makers need to increase the efficacy of energy sector promoting economic growth. Since the exports of the country are found non-significant in long run, it is important for the country to channelize the capital formation and energy sector within the country enhancing exports to evade from trade deficits.

DOI: 10.7176/JESD/10-14-03

Publication date:July 31^st 2019