Determining the Impact of Economic Growth, Carbon Emissions, Foreign Direct Investments, and Trade Openness on Energy Consumption in the Philippines

Abstract

The Philippine energy sector is currently facing the problem of rising energy demand and the dominance of coal and natural gas in the energy mix. The current objective of the Philippine energy sector is to satisfy energy demand while maintaining its goal of reducing environmental effects. The paper explores the dynamic relationship between energy consumption in per capita terms and selected variables, namely, aggregate output, carbon emissions, foreign direct investment, and trade openness in the Philippines. The data spans the period from 1981 to 2017. The paper utilizes a multivariate framework based on the theoretical premises revolving around the energy-growth nexus. Time-series econometric modeling based on the OLS regression analysis is employed for this purpose. The results of the Johansen cointegration test confirm the presence of cointegrating relationships and finds a strong long-run relationship among the variables. The regression analysis results found that economic growth and carbon emission are significantly correlated with energy consumption. The paper finds that energy consumption is negatively correlated with economic growth and positively correlated with carbon emissions. The results suggest that policymakers can enforce energy conservation policies without hampering the economy too much. The results highlight the need for pollution-abatement policies and technologies in order to minimize the effect of the energy sector on the environment. Therefore, the share of renewable energy sources in the energy mix should increase.