The Effect of Energy Consumption and Human Capital on Economic Growth: An Exploration of Oil Exporting and Developed Countries

Energy has long been argued as an essential factor for the development of the economy and therefore it should be brought in line with the other production factors of neoclassical economics, capital and labour. Using panel data for 130 countries from 1981 to 2009, this paper explores the impact of multiple forms of energy consumption and human capital on per capita GDP growth. Generalized method of moments is applied to estimate an augmented neoclassical growth model that includes education and health capital as well as energy consumption. The key outcomes from this study show that education and health capital have a significant effect on economic growth. Energy consumption is also found to support higher growth. The results on the differential effects of energy and human capital on the economic growth of the developed and oil exporting countries indicate that energy consumption has a significant positive effect in both types of countries. Education capital affects the developed countries positively while health capital affects the oil exporting countries' economic growth negatively. These results are useful for policy makers, especially in less developed countries encouraging them to implement, for example, compulsory secondary education and child immunizations in order to reach higher standards of living. Moreover, energy must be used more efficiently to ensure sustainable growth.