Natural gas consumption and economic growth: A panel data analysis

Natural gas (NG) is the fastest growing primary energy source because it is a cleaner fuel than oil or coal, and not as controversial as nuclear power. This paper attempts to explore whether or not there is a systematic relationship between NG consumption and economic growth using a cross-country approach. In particular, the existence of an inverted-U relationship between the two is investigated. To this end, we employ a panel data analysis with fixed effect or random effect models using the set of data from 54 countries for the year 1990-2008. In conclusion, a statistically significant inverted-U relationship between per capita consumption of NG and per capita GDP is found. However, the level of per capita GDP at the peak point of per capita NG consumption is estimated to be 42,357 in 2005 international dollars, which is larger than economic scales of most sampled countries. Thus, as per capita GDP grows, per capita NG consumption is predicted to increase in the future until eventually reaching the peak.