Energy consumption and economic growth in Vietnam

Abstract

This study attempts to analyse the relationship between energy consumption and economic growth in Vietnam using the neoclassical Solow growth framework for the 1971-2011 period. The concept and methods of cointegration and Granger causality are used to establish the relationship between the variables of interest. Our results confirm the existence of cointegration among the variables. In particular, energy consumption, FDI and capital stock were found positively influence economic growth in Vietnam. The Granger causality test revealed unidirectional causality running from energy consumption to economic growth. Hence, Vietnam is an energy-dependent economy and any energy or environment policy drawn up in an attempt to conserve energy will jeopardise the process of economic development in Vietnam. For this reason, the renewable energy policy should be given attention to provide sufficient supplies of energy to speed up economic expansion. Investment in R&D may be required to incentivise private/public institutions to engage in this innovation, while the awareness for energy-saving policy among public could be integrated to meet social economic development