Energy Consumption and Economic Growth in Jordan: An ARDL Bounds Testing Approach to Cointegration

This paper has two purposes: to examine the role of energy consumption in stimulating economic growth in Jordan and to investigate the direction of causality between energy consumption and economic growth in Jordan using annual data over the period 1980-2012. To accomplish the first purpose an Autoregressive Distributed Lag (ARDL) approach is used to estimate a logarithmic version of traditional neo-classical aggregated production function where output is a function of energy, capital and labor. Based on the estimates, long-run elasticities of output with respect to energy, capital and labor are found to be 0.85, 0.30 and 0.37, respectively. While, the short-run estimates are 0.29, 0.24 and 0.28, respectively. Granger-Causality test demonstrates a positive bidirectional relationship between energy consumption and economic growth supporting a feedback hypothesis; under this hypothesis energy consumption and real GDP are determined together suggesting that a policy of energy conservation would tend to slow economic growth in Jordan.