Is the energy-led growth hypothesis valid? New evidence from a sam- ple of 85 countries Nicholas Apergis a, ⁎, Chor Foon Tang b a Department of Banking and Financial Management, University of Piraeus, Greece b Department of Economics, Faculty of Economics and Administration, University of Malaya, Malaysia abstract article info Article history: Received 9 July 2012 Received in revised form 11 February 2013 Accepted 15 February 2013 Available online 27 February 2013 JEL classification: Q43 C33 Keywords: Energy-led growth TYDL causality Logit model 85 countries The energy-growth literature contains a large number of discussions on the causal relationship between energy consumption and economic growth. The central debate focuses on whether energy consumption contributes or not to economic growth since it has direct implications for the formulation of strategic policies. Nevertheless, current studies cannot provide a conclusive suggestion due to mixed causality results. This inconclusive evidence is potentially attributed to model specifications and the stage of economic development of the countries under investigation. Hence, this study attempts to empirically re-investigate the validity of the energy-led growth hypothesis using a different model specification and different stages of economic development for 85 selected countries around the globe. Overall, although the causality results are mixed among countries, we do find a sys- tematic pattern. In particular, Granger causality models with three and four variables are more likely to support the hypothesis compared to their counterparts that contain only two variables. In addition, both developed and developing countries are more likely to support the energy-led growth hypothesis compared to the less devel- oped or low income countries. Therefore, causality results are very sensitive to the choice of the model specifica- tion along with the stages of economic development. Finally, energy conservation policies should only focus on low income countries as these policies may not retard the process of economic growth. © 2013 Elsevier B.V. All rights reserved. 1. Introduction To achieve high and sustainable economic growth is a major con- cern for practically every policymaker around the world. Over the past decades, energy has been one of the fastest growing factors of production used, particularly, in the developing countries. Hence, the causal relationship between energy consumption and economic growth has been a relevant topic in a growing body of the empirical research in many countries. Jumbe (2004) and Squalli (2007) narrate that comprehending the actual direction of causality between energy consumption and economic growth has substantial implications for policymakers as well as for the natural environments. In terms of the causality methodology, there are two main hypotheses under investigation: the energy-led growth hypothesis and the growth-led energy hypothesis. Within this framework, Granger-causality gives rise to four alternative cases. In particular, causality may result in: i) unidirectional causality from energy con- sumption to economic growth (the growth hypothesis), ii) unidirec- tional causality from economic growth to energy consumption (the conservation hypothesis), iii) bi-directional causality from en- ergy consumption to economic growth (the feedback hypothesis), and iv) no causality between energy consumption and economic growth (the neutrality hypothesis). However, according to Bartleet and Gounder (2010), it is more important to investigate the validity of the growth hypothesis because it is getting more difficult for policymakers to implement energy conservation policies, especially for energy dependent countries, and, thus, efforts to reduce energy consumption are potentially harmful for economic growth. If energy consumption Granger-causes economic growth, then energy conservation policies aiming at protecting the environment are expecting to deteriorate the current stage of economic growth. In addition, if eco- nomic growth Granger-causes energy consumption, energy conservation policies can be implemented to reduce carbon dioxide (CO2) emissions and global warming without deleterious effects on the process of eco- nomic growth. Apparently, comprehending the direction of causality be- tween energy consumption and economic growth is not only important for policymakers to enhance economic growth, but it is also important for them to converse energy consumption to reduce both CO2 emissions and global warming. Given the policy relevance of testing Granger causality between energy consumption and economic growth, a vast number of empirical works has been conducted on the issue. Nonetheless, it is hard to convince that findings of earlier studies have reached a consensus (Ozturk, 2010; Payne, 2010). To this rea- son, earlier studies cannot provide accurate recommendations to policymakers to design effective policies in order to stimulate eco- nomic growth and/or to safeguard the environment. Energy Economics 38 (2013) 24–31 ⁎ Corresponding author at: Department of Banking & Financial Management, University of Piraeus, 80 Karaoli & Dimitriou, 18534 Piraeus, Greece. E-mail address: napergis@unipi.gr (N. Apergis). 0140-9883/$ – see front matter © 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.eneco.2013.02.007 Contents lists available at SciVerse ScienceDirect Energy Economics journal homepage: www.elsevier.com/locate/eneco