Is There Really Granger Causality Between Energy Use and Output?

Abstract

We carry out a meta-analysis of the very large literature on Granger causality tests between energy use and economic output to determine if there is a genuine effect in this literature or whether the large number of apparently significant results is due to publication and misspecification bias. Our model extends the standard meta-regression model for detecting genuine effects using the statistical power trace in the presence of publication biases by controlling for the tendency to over-fit vector auto regression models in small samples. These over-fitted models have inflated type 1 errors. We find that models that include energy prices as a control variable find a genuine effect from output to energy use in the long-run. A genuine causal effect also seems apparent from energy to output when employment is controlled for and the Johansen procedure is used.