Energy Policy 38 (2010) 65606565

Contents lists available at ScienceDirect

Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Viewpoint

Causality between energy consumption and output growth in the Indian

cement industry: An application of the panel vector error correction
model (VECM)
Sabuj Kumar Mandal a,n, S. Madheswaran b
a
b

T.A. Pai Management Institute (TAPMI), Manipal 576104, Karnataka, India

Institute for Social and Economic Change, Bangalore 560072, Karnataka, India

a r t i c l e in f o

a b s t r a c t

Article history:
Received 27 March 2010
Accepted 20 July 2010
Available online 12 August 2010

The aim of this paper is to examine the existence and direction of the causal relationship between
energy consumption and output growth in the Indian cement industry for the period 197980 to
200405. The most recently developed panel unit root, a heterogeneous panel cointegration and panelbased error correction model, is applied within a multivariate framework. The empirical results conrm
a positive, long-run cointegrated relationship between output and energy consumption when
heterogeneous state effects are taken into account. We also found a long-run, bi-directional relationship
between energy consumption and output growth in the Indian cement industry for the study period,
implying that an increase in energy consumption directly affects the growth of this sector and that
growth stimulates further energy consumption. These empirical ndings imply that energy
consumption and output are jointly determined and affect each other. The empirical evidence also
suggests the implementation of energy conservation policies oriented toward improving energy-use
efciency to avoid any negative impacts of the conservation policies on the growth of this industry.
& 2010 Elsevier Ltd. All rights reserved.

Keywords:
Energy-output causality
Indian cement industry
Panel error correction model

1. Introduction
Energy is considered a basic building block for almost all
economic activities. Future economic growth crucially depends on
the long-term availability of energy in increasing quantities.
However, energy use in most cases generates undesirable
emissions with severe detrimental impacts on the environment,
including climate change. Therefore, most of the emerging
economies face dual challenges. On the one hand, for potential
future growth, countries are likely to experience a rapid growth in
energy demand; on the other hand, they have to meet their
energy requirements in an environmentally friendly way to
protect the global environment from the impacts of climate
change. These dual objectives call for the implementation of
energy conservation policies.
The implementation of energy conservation policies needs
careful investigation of the direction of causation between energy
consumption and economic growth because the direction of
causation has signicant implications on policy formulation. If, for
example, there exists unidirectional causality running from
economic growth to energy consumption, energy conservation

Corresponding author. Tel.: +91 9880049377.

E-mail address: sabujecon@gmail.com (S. Kumar Mandal).

0301-4215/$ - see front matter & 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2010.07.042

policies may be implemented with little or no adverse effects on

economic growth (Paul and Bhattacharya, 2004). On the other
hand, a unidirectional causality running from energy consumption to economic growth implies that energy is a prerequisite for
economic growth and that reducing energy consumption in this
case could lead to a fall in economic growth. In contrast, a
bi-directional causality implies energy and income are jointly
determined and affect each other. And lastly, ndings of no
causality in either direction imply energy is neutral to economic
growth and energy conservation policies do not affect economic
growth (Asafu-Adjaye, 2000).
Due to its important implications on policy formulation,
several scholarly attempts have been made to study the existence
and direction of causality between energy consumption and
economic growth across the world. However, in India, very little
attention has been given to the causal relationship between
energy consumption and economic growth. Notable studies in
this regard include Masih and Masih (1996), where cointegration
and a vector error correction model were used to examine the
direction of this causal relationship in India and other Asian
countries. Empirical results of their study established unidirectional causality running from energy consumption to economic
growth in India during the study period 19551990. In contrast,
Cheng (1999), using cointegration and the Granger causality test,
established a unidirectional causal relationship running from

S. Kumar Mandal, S. Madheswaran / Energy Policy 38 (2010) 65606565

economic growth to energy consumption. Ghosh (2002) also

established a unidirectional Granger causality running from
economic growth to electricity consumption. Again, the ndings
of Asafu-Adjaye (2000) support the ndings of Masih and Masih
(1996) but contrast the ndings of Cheng (1999). In a recent
study, Paul and Bhattacharya (2004) found bi-directional
causality between energy consumption and economic growth in
India for the period 19501996.
Therefore, in an Indian context, the empirical ndings on the
causal relationship between energy consumption and economic
growth have been mixed or conicting. This kind of conicting
result is common not only in India but also in studies conducted
in several other countries. Depending on the country and time
period studied, the methodology adopted, the number of variables
included in the model, the structure of energy used (aggregate or
specic) and the direction of causality between energy consumption and economic growth vary among studies.
However, one common limitation of the existing studies on
this causality issue is that almost all the studies have been
conducted at the aggregate economy level. However, an economy
consists of different sectors, for example, agriculture, industry and
service sectors. Dependence on energy varies from one sector to
another, and overtime, the importance of a specic sector may
change (Mishra et al., 2009). Therefore, the relationship between
energy consumption and real GDP may not be uniform across
the sectors, whereas studies conducted at the aggregate level
implicitly assume such a uniform relationship between energy
consumption and GDP. A recent study by Payne and Bowden
(2009) established that the relationship between energy
consumption and real GDP was not uniform across sectors of
the US economy for the period 19492006. Their study found no
causality between energy consumption and GDP in the transportation sector; bi-directional Granger causality between commercial and residential primary energy consumption and real GDP,
respectively; and nally, unidirectional causality running from
energy consumption to real GDP in the industrial sector. Our
present study goes a step further in terms of disaggregation by
taking a particular industry from the entire industrial sector
because of the existence of heterogeneity in terms of energy
intensity within this sector. For example, within the industrial
sector there are high- energy intensive industries, whereas others
are less energy intensive. We are interested in studying the issue
of energy-growth causality in the context of the Indian cement
industry, which is the most energy-intensive industry in India
(Mandal and Madheswaran, 2010). To the best of our knowledge,
this is the rst study dealing with the issue of energy-growth
causality in a specic industrial sector applying the recently
developed panel vector error correction model.
The rest of the paper is structured as follows. Section 2
provides a brief description of the Indian cement industry.
Section 3 denes the variables and data sources. The econometric
methodology and empirical results are discussed in Section 4.
Section 5 concludes the study with a discussion of policy
implications.

2. The context of Indian cement industry

The Indian cement industry had unprecedented growth
because of the governments liberalization policy initiated in the
form of partial decontrol in 1982 and culminating in total
decontrol in 1989. The industry has become the second largest
in terms of cement production in the world. However, this huge
growth in cement production has been associated with higher
utilization of energy. Among the energy-intensive industries in
India, the cement industry has the highest energy intensity and

6561

the second highest share of fuel consumption (15.60%) after iron

and steel (18.10%). This energy consumption is mostly in the
form of coal utilization (Mandal and Madheswaran, 2010).
This expansion could not have been achieved without a very
large increase in energy input, especially in the form of coal
combustion.
This increase has resulted in severe environmental problems in
the coal mining regions and around the cement producing plants.
In addition, Indias annual emission of greenhouse gases from the
cement industry increased from 7.32 mt in 1993 to 16.73 mt in
2003, and its share in total CO2 emission has increased from 3.3%
to 4.8% during this period (ICRA, 2006). The Indian Government,
recognizing the potential dangers of these environmental
problems, has effected many policy changes over the past 25
years to increase the energy efciency of the rms and thereby
reduce the CO2 emissions, with particular emphasis on energyintensive heavy industries, such as the cement industry.1 Recent
additions to these policies include the Energy Conservation Act
(2001), which has earmarked the Indian cement industry as
designated consumers of energy. The Energy Conservation Act
empowered the central and state governments to direct these
designated consumers to comply with certain norms and
standards regarding energy use. The impact of these energy
conservation policies on the growth of this industry depends on
the existence and direction of the causal relationship between
energy consumption and output growth of this sector. Therefore,
it is worth investigating this causality issue in the context of the
Indian cement industry.

3. Denition of variables and data sources

Our data set consists of a balanced panel of 18 major Indian
cement-producing states over the period 19791980 to
20042005. We investigated the energy-income/output relationship from a production side model, which conceptualizes output
as a function of energy, capital stock, labor and material. Annual
state level data regarding output and inputs were collected from
the Annual Survey of Industries (NIC code 324 for the years
19791980 to 19971998 and 269 for the years 19981999 to
20042005). All the nominal variables were converted into real
terms with the base year 19931994. Output was measured by
the value of ex-factory products and by-products, which was
deated by the wholesale price index for cement. The capital
input was measured as a stock by taking the value of xed capital
and deating it by the wholesale price index for machinery and
machine tools. Labor was measured by the total number of
persons employed. Energy was measured in terms of expenditure
on fuels deated by the wholesale price index for fuel, power,
light and lubricants. Similarly, the material input was measured
by the expenditure on materials and deated by the wholesale
price index for non-metallic mineral products. We have divided
annual aggregate data on all inputs and outputs by the total
number of factories in a particular state in a particular year to
obtain information on the variables of a typical rm within
each state.2

1
For details of the energy efciency policies initiated by the Indian
Government, see Yang (2006).
2
This approximation of rm-level data of the industry is not perfect because
we assume that all rms in a particular state produce equally using equal amount
of inputs. In the absence of rm-level data within the states, we have used this
kind of approximation. Mukherjee (2008), in the context of Indian manufacturing,
used the same approximation.

6562

S. Kumar Mandal, S. Madheswaran / Energy Policy 38 (2010) 65606565

4. Econometric methodology and results

Table 1
Panel unit root testsa.

Given the relatively short span of our time-series data, which

reduces the power and size properties of conventional unit root
and cointegration tests, the panel unit root and cointegration
testing approach of Pedroni (1999, 2004) was employed to infer
the existence and direction of the causal relationship between
energy consumption and output growth. Following the literature,
four steps were performed for the cointegration and causality
analysis. First, to avoid any spurious correlation between the
energy and output variables, we tested for a panel unit root to
examine whether the variables in our model were stationary.
Second, we tested for cointegration among the variables employing the heterogeneous panel cointegration test developed by
Pedroni (1999). The cointegration test examines whether a longrun equilibrium relationship exists among the variables when
individual variables are non-stationary in nature. Because there is
a lot of heterogeneity across the states in terms of their industrial
structure, level of cement production and availability of coal,
which is the major fuel used in this industry, we applied the
heterogeneous panel cointegration to account for the state
specic effects and cross-sectional interdependence. Once the
cointegration relationship was established, following Apergis and
Payne (2009, 2010), we applied the panel VECM to investigate the
direction of the causal relationship between energy consumption
and output growth. Finally, we estimated long-run elasticities
using the fully modied OLS (FMOLS) technique (Pedroni, 2000).

Variables

Breitung t-test

Levels
Output
Energy
Capital
Material
Labor

1.9849
 0.0570
 1.2034
1.8587
 1.2529

First difference
Output
Energy
Capital
Material
Labor

 8.7929
 12.2928
 9.9779
 6.9659
 10.3750

Probability value

(4)
(1)
(3)
(4)
(4)

0.9764
0.4772
0.3810
0.9685
0.2710

(3)n
(1)n
(1)n
(4)n
(3)n

0.0000
0.0000
0.0000
0.0000
0.0000

a
Breitung unit root test was performed with individual trends and intercepts
for each series. All variables are in natural logarithm. The number in the
parenthesis denotes optimal lag length selected automatically using the Schwarz
information criteria. The null hypothesis is a unit root.
n
denotes statistical signicance at the 1% level.

these ve variables is panel non-stationary. However, when

we applied the panel unit root test to the rst difference of the
log-level variables, we could reject the null hypothesis of unit root
for each of the variables at the 1% level of signicance. These
results suggest the ve variables contain a panel unit root.
4.2. Panel cointegration

4.1. Panel unit root

A number of panel unit root tests have been proposed in the

literature, including Maddala and Wu (1999), Breitung (2000) and
Im et al. (2003). Recently, Hlouskova and Wagner (2006), by a
large-scale Monte Carlo simulation, found that the Breitung
(2000) panel unit root test has the highest power and smallest
size distortions among all other panel unit root tests. Narayan and
Smyth (2009) also used only the Breitung (2000) unit root test for
their study.
The Breitung (2000) panel unit root test has the following
form:
yit ait

pX
1

bik Xi,tk et

k1

In Eq. (1), the Breitung (2000) test statistic examines the null
hypothesis that the process is a difference stationary:
P
H0 : pk 11 bik 1 0. The alternative hypothesis assumes that
Pp 1
the panel series is stationary, i.e.,
b 1 o 0 for all i.
k 1 ik
Breitung (2000) uses the following transformed vectors to
construct the test statistic:

=
Yi AYi yi1 ,yi2 ,. . .,yiT


=
Xi AXi xi1 ,xi2 ,. . .,xiT
These transformed vectors are then used to construct the
following test statistic:
PN
2 = =
i 1 si yi xi

2
lB q
PN
2 = =

i 1 si Xi A AXi
The statistic follows a standard normal distribution. The
results of the Breitung (2000) panel unit root test are reported
in Table 1. The test statistics for the log-levels of output, energy,
capital, labor and material are insignicant, implying that each of
3
The discussion of the Breitung panel unit root test is mostly drawn from
Narayan and Smyth (2009).

Once it is found from the unit root test that the variables are
non-stationary, i.e., they are integrated of order one, then the next
step is to apply cointegration analysis to examine whether a longrun cointegration relationship exists among those variables.
In this study, we applied Pedronis method of cointegration to
allow for heterogeneity across individual members of the panel. In
its most general form, he considered the following type of
regression:
yit ai di t bi Xit eit

where Xit is an m-dimensional column vector for each member i

and bi is an m-dimensional row vector for each member i of the
panel. The variables yit and Xit are assumed to be integrated of
order one, denoted by I(1), for each member of i of the panel, and
under the null of no cointegration, the residual eit will also be I(1).
The parameters ai and di allow for the possibility of memberspecic effects and deterministic trends, respectively. The slope
coefcients bi were also permitted to vary across individuals such
that the cointegrating vectors may be heterogeneous across
members of the panel. Therefore, four statistics were developed
to test the unit roots of the estimated residuals based on the
within-dimension approach, which pools the autoregressive
coefcients across members of the panel. These four statistics
were as follows: (a) the panel variance-statistic, (b) the panel
rho-statistic, (c) the panel PP-statistic and (d) the panel ADFstatistic. In addition, Pedroni (1999) has also developed a test
based on the between dimensions approach, which simply
averages the individually estimated coefcients for each member
using three statistics: (e) the group rho-statistic, (f) the group PPstatistic and (g) the group ADF-statistic (see Pedroni (1999, 2004)
for details about these statistics). The distributions of these seven
statistics are all asymptotically standard normal. Each of these
tests is able to accommodate individual specic short-run
dynamics, individual specic xed effects, deterministic trends
and individual specic slope coefcients (Pedroni, 2004).
The results of the panel cointegration test are reported in
Table 2. Note that the dependent variable is the log of output.

S. Kumar Mandal, S. Madheswaran / Energy Policy 38 (2010) 65606565

Table 2
Pedroni panel cointegration tests.
Test statisticsa

Fixed time effects

No time effects

Panel
Panel
Panel
Panel

0.5037
 0.1390
 7.6145n
 7.9684n

 0.5710
 1.5797
 4.9733n
 4.8763n

1.9308
 7.8434n
 6.7372n

0.9255
 2.9020n
 2.8462n

v
rho
PP
ADF

Group rho
Group PP
Group ADF

a
Statistics are asymptotically distributed as normal. The panel v-test is rightsided, whereas the others are left sided.
n
implies rejection of the null of no cointegration at the 1% level.

Except for the panel variance, the panel rho and the group rho
statistics, all other statistics signicantly reject the null of no
cointegration.4 Therefore, it can be inferred from the cointegration
result that a co-movement exists among output, capital, labor,
material and energy in the long run.
4.3. Panel causality test
Once the variables were cointegrated, the next step performed
was the causality test. We used a panel-based (VECM) to identify
the existence and direction of a long-run equilibrium relationship
using the two-step procedure of Engle and Granger (1987). In the
rst step, we estimated the long-run model using
ln Yit ait dit t g1i ln Eit g2i ln Kit g3i ln Lit g4i ln Mit eit

where Y, E, K, L and M stand for output, energy, capital, labor

and material, respectively.5 Estimating Eq. (4) we obtained the
estimated residual e (the error correction term; ECT hereafter). In
the second step, we estimated the panel Granger causality model
with dynamic error correction as follows:
X
X
DYit y1j l1i ECTit1 y11ik DYitk y12ik DEitk

y13ik DKitk

y14ik DLitk

y15ik DMitk u1it

y21ik DEitk

4.4. Panel long-run elasticities

y22ik DYitk

y24ik DLitk

hypothesis H0:y12ik 0 for all i and k in Eq. (5) or H0:y22ik 0 for all
i and k in Eq. (6). Masih and Masih (1996) and Asafu-Adjaye
(2000) interpreted the short run causality as a weak Granger
causality.
Another possible source of causation is the ECT in Eqs. (5) and
(6). The coefcient of the ECTs, l, is called speed of adjustment,
which represents how fast deviations from the long-run equilibrium are eliminated following changes in each variable
(Mehrara, 2007). For long-run causality, we tested H0:l1i 0 for
all i in Eq. (5) or H0:l2i 0 for all i in Eq. (6). For example, if l1i 0,
the output (Y) does not respond to a deviation from the long-run
equilibrium in the previous period. Indeed l1i 0 or l2i 0 for all i
is equivalent to both Granger non-causality in the long run and
weak exogeneity (Hatanaka, 1996 in Mehrara, 2007).
Finally, we tested whether the two sources of causation were
jointly signicant. This step was done by testing the joint
hypothesis H0:l1i 0 and y12ik 0 for all i and k in Eq. (5) or
H0:l2i 0 and y22ik 0 for all i in Eq. (6). We used a standard F-test
to test the hypothesis of joint signicance. The results of the panel
causality test are reported in Table 3.
As is clear from Table 3, the coefcients of E and ECT were
signicant at the 1% level for the output equation. Additionally,
the coefcients of Y and ECT were also signicant at the 1% level in
the energy equation. This result implied that there is both a shortrun and long-run bi-directional causality between energy consumption and output growth in the Indian cement industry.
Moreover, the ECT combined with the joint tests of E, K, L and M in
the output equation was statistically signicant at the 1% level,
implying all these variables play an important role in determining
output and correspond to theoretical expectations. Similarly, in
the energy equation, the joint tests of ECT with other variables
were signicant except for labor, implying capital and material
determine energy demand both in short run and long run.
Our nding of bi-directional causality between energy consumption and output in an Indian context is consistent with the
ndings of Paul and Bhattacharya (2004), though their study used
aggregated Indian data covering the period 19501996, whereas
ours is a disaggregated study considering only the cement
industry between 19791980 and 20042005.

y23ik DKitk

DEit y2j l2i ECTit1

6563

y25ik DMitk u2it

where D denotes rst difference and k is the lag length. We use an

instrumental variable estimator to eliminate the correlation
between the error term and the lagged dependent variables in
the dynamic panel data model. Optimum lag length was chosen at
k3 because when k3, the error term satises all the essential
classical assumption. We use four and ve periods as instruments
for the lagged dependent variable following Lee and Chang
(2008). The labor force, capital stock and material equations were
omitted because our aim was to examine causality between
energy and output only.
The sources of causation can be identied by testing the
signicance of the coefcients of the dependent variables in
Eqs. (5) and (6). For short-run causality, we tested the null
4
Pedroni (1999) shows that the panel ADF and group ADF tests have better
small-sample properties than the other tests, and hence, they are more reliable
(Lee et al., 2008).
5
Following Lee and Chang (2008), we have used the CobbDouglas functional
form to estimate the long-run equilibrium relationship among the variables.

Once the direction of the long-run causality was established,

the nal step was to estimate the long-run elasticities. Following
Pedroni (2000), the FMOLS values for the heterogeneous cointegrated panel were estimated. The rationale for using FMOLS is
that in the presence of unit root variables, the effect of superconsistency may not dominate the endogeneity effect of the
regressors if OLS is employed (Lee et al., 2008). Pedroni (2000)
showed that the FMOLS approach can be used to draw an
inference about cointegration with heterogeneous dynamics.
FMOLS takes care of the endogeneity problem and provides
unbiased estimates of the coefcients, which can be interpreted
as long-run elasticities. Table 4 displays the FMOLS estimates.
Because our causality test conrmed bi-directional causality
between output and energy consumption, we estimated FMOLS
considering both output and energy as dependent variables and
estimated two separate equations to obtain elasticity of output
with respect to energy and elasticity of energy with respect to
output. When output was considered the dependent variable, all
the independent variables were signicant at the 1% level.
Because all the variables were converted to the logarithmic form,
the coefcients of the independent variables can be considered as
long-run elasticities. The elasticity of output with respect to
energy was 0.34, implying a 1% increase in energy consumption

6564

S. Kumar Mandal, S. Madheswaran / Energy Policy 38 (2010) 65606565

Table 3
Panel causality test results.
Dependent variable

Sources of causation (independent variable)

Short run

Long run

DY

DE

57.49n

DY
DE

23.59

DK
n

DL
n

37.28
43.36n

11.84
6.17

ECT

DM
n

31.25
26.37n

(ECT, Y)
n

6.59
6.70n

58.37n

(ECT, E)
24.04

(ECT, K)

38.24
44.85n

(ECT, L)

(ECT, M)

nn

31.43n
28.38n

11.95
7.15

For long-run causality, we have tested the joint signicance of the error correction term ECT with lag terms of the variables. Due to space requirements, we have omitted
the D sign before the variables.
n

Denote statistical signicance at 1% level.

Denote statistical signicance at 5% level.

nn

Table 4
Fully modied OLS estimates.
Dependent variablesa

Independent variablesa
Y

Y
E

0.62 (24.39)n
a
n

E
0.34 (23.74)

K
n

L
n

0.15 (6.03)
 0.13 (5.68)n

0.05 (6.48)
0.11 (1.09)

M
n

0.58 (37.64)n
0.77 (13.97)n

All variables are in natural logarithmic form. t-values are given in parentheses.
indicates signicance at the 1% level.

increases output by 0.34%. The elasticity of energy with respect to

output was 0.62, implying a 1% increase in output increases
energy consumption by 0.62%. The coefcient of capital in the
energy equation was negative, implying that rms with more
capital consume less energy to produce a given level of output.
This result indicates that energy saving is a capital-intensive
process.

5. Concluding remarks and policy implications

The objective of this study was to examine the existence and
direction of a causal relationship between energy consumption
and output growth in the context of the Indian cement industry.
Using data for 18 major cement-producing states and applying a
panel VECM, the study established a bi-directional causality
between energy consumption and output growth for the study
period 19791980 to 20042005. This bi-directional causality
implies energy consumption and output growth are jointly
determined and affect each other simultaneously. Energy might
Granger-cause output because it is an important input in the
production process. Output might Granger-cause energy because
expansion of output demands further energy consumption,
particularly when the degree of substitution between energy
and non-energy inputs is very low, which is true for this energyintensive industry. However, the elasticity of output with respect
to energy was lower than the elasticity of energy with respect to
output. A 1% increase in energy consumption increases output by
0.34%, whereas a 1% increase in output increases energy
consumption by 0.62%.
In the presence of bi-directional causality, energy conservation
measures may negatively affect economic growth (Yoo, 2006).
Therefore, in the Indian cement industry, the energy conservation
policies may prevent the growth of this sector. Therefore, policy
makers face dual challenges. On the one hand, due to governments emphasis on infrastructure building where cement is used
as a core input, the industry is likely to experience rapid growth
achieved by a massive consumption of energy. This calls for
implementation of the energy conservation policies that reduce

the energy consumption of this industry. On the other hand,

stringent energy conservation policies may negatively affect the
growth of this industry due to the very nature of the energyoutput causality found in this sector.
Technology has an important role to play for meeting these
dual challenges. If the energy conservation policies could induce
technological innovation and the adoption of energy-efcient
technologies, the dual objectives of reducing energy consumption
and its adverse effect on the environment while avoiding the
negative effect of lowering energy consumption on output growth
could be achieved (Mishra et al., 2009). In the Indian cement
industry, successful efforts have been made to develop and adopt
energy- efcient technologies. As a result, there has been a major
shift from the energy-intensive wet process to a less-intensive
dry process. Today, around 93% of the Indian cement plants are
based on dry processes, and the industry mostly follows the
worlds best technologies. However, this industry still has the
potential to improve its energy efciency by lowering the clinker
cement ratio. A low clinkercement ratio contributes signicantly
to lower energy use per ton of cement because clinker production
is the most energy intensive process during production. India had
a clinkercement ration of 0.87 in 2005. By comparison, China has
a clinkercement ratio of about 0.75, and the worlds average is
0.82 (Gielen and Taylor, 2009). To achieve this potential
improvement in energy efciency requires a proper policy
environment, which would induce the industry to adopt the
worlds best technology.
Therefore, we conclude by suggesting that energy conservation
policies could be implemented in this industry, but such policies
must be carefully constructed with continuous encouragement
and support from the governments to adopt energy-efcient
technologies.

Acknowledgments
We gratefully acknowledge Prof. Rabindranath Bhattacharya
and Prof. M. Ramachandran for their valuable suggestions given at
different stages of preparing the paper. Thanks are also due to two

S. Kumar Mandal, S. Madheswaran / Energy Policy 38 (2010) 65606565

anonymous referees of this journal for their helpful and

constructive comments on an earlier draft of the paper. However,
the usual disclaimer applies.
References
Apergis, N., Payne, J.E., 2010. Renewable energy consumption and economic growth:
evidence from a panel of OECD Countries. Energy Policy 38 (1), 656660.
Apergis, N., Payne, J.E., 2009. Energy consumption and economic growth in Central
America: evidence from a panel cointegration and error correction model.
Energy Economics 31 (2), 211216.
Asafu-Adjaye, J., 2000. The relationship between energy consumption, energy
prices and economic growth: time series evidence from Asian developing
countries. Energy Economics 22, 615625.
Breitung, J., 2000. The local power of some unit root test for panel data. Advances
in Econometrics 15, 161167.
Cheng, B.S., 1999. Causality between energy consumption and economic growth in
India: an application of cointegration and error-correction modeling. Indian
Economic Review xxxiv (1), 3949.
Engle, R.F., Granger, C.W.J., 1987. Cointegration and error correction representation, estimation and testing. Econometrica 55, 251276.
Ghosh, S., 2002. Electricity consumption and economic growth in India. Energy
Policy 30, 125129.
Gielen, D., Taylor, P., 2009. Indicators for industrial energy efciency in India.
Energy 34, 962969.
Hatanaka, M., 1996. Time-Series-Based Econometrics: Unit Roots and Cointegration.. Oxford University Press, Oxford.
Hlouskova, J., Wagner, M., 2006. The performance of panel unit and stationary tests:
results from a large scale simulation study. Econometric Reviews 25, 85116.
ICRA Sector Analysis, 2006. The Cement Industry in India.
Im, K.S., Pesaran, M.H., Shin, Y., 2003. Testing for unit roots in heterogeneous
panels. Journal of Econometrics 115, 5374.
Lee, C.C., Chang, C.P., 2008. Energy consumption and economic growth in Asian
economies: a more comprehensive analysis using panel data. Resource and
Energy Economics 30, 5065.

6565

Maddala, G.S., Wu, S., 1999. A comparative study of unit root tests with panel data
and a new simple test. Oxford Bulletin of Economics and Statistics, 631652.
Mandal, S.K., Madheswaran, S., 2010. Energy use efciency of Indian cement
companies: a data envelopment analysis. Energy Efciency, in press, doi:
10.1007/s12053-010-9081-7.
Masih, A.M.M., Masih, R., 1996. Electricity consumption, real income and
temporal causality: results from a multi-country study based on
cointegration and error correction modeling techniques. Energy Economics
18, 165183.
Mehrara, M., 2007. Energy consumption and economic growth: the case of oil
exporting countries. Energy Policy 35, 29392945.
Mishra, V., Smyth, R., Sharma, S., 2009. The energy-GDP nexus: evidence from a
panel of Pacic Island Countries. Resource and Energy Economics 31 (3),
210229.
Mukherjee, K., 2008. Energy use efciency in the Indian manufacturing sector: an
interstate analysis. Energy Policy 36, 662672.
Narayan, P.K., Smyth, R., 2009. Multivariate Granger causality between electricity
consumption, exports and GDP: evidence from a panel of Middle Eastern
countries. Energy Policy 37, 229236.
Paul, S., Bhattacharya, R.N., 2004. Causality between energy consumption and
economic growth in India: a note on conicting results. Energy Economics 26,
977983.
Payne, J.E., Bowden, N., 2009. The causal relationship between U.S. energy
consumption and real output: a disaggregated analysis. Journal of Policy
Modeling 31 (2), 180188.
Pedroni, P., 1999. Critical values for cointegration tests in heterogeneous panels
with multiple regressors. Oxford Bulletin of Economics and Statistics 61 (4),
549.
Pedroni, P., 2000. Fully modied OLS for heterogeneous cointegrated panels.
Advances in Econometrics 15, 93130.
Pedroni, P., 2004. Panel cointegration: asymptotic and nite sample properties of
pooled time series tests with an application to PPP hypothesis: new results.
Econometric Theory 20 (3), 597627.
Yang, M., 2006. Energy efciency policy impact in India: case study of investment
in industrial energy efciency. Energy Policy 34, 31043114.
Yoo, S-H., 2006. The causal relationship between electricity consumption and
economic growth in the ASEAN countries. Energy Policy 34, 35733582.