What is it about?

Natural gas is a major fuel in Peru, accounting for nearly 45 % of all energy sources used to generate electricity. This paper aims to analyze the nexus between gross domestic product (GDP) and natural gas consumption (NGC), considering Peru’s trade openness (Tr) from 1965 to 2022. From the results obtained in this research, the following conclusions are derived: First, the Granger causality (GC) test results validated the neutrality hypothesis between NGC and GDP, allowing us to conclude that policies to conserve or increase NGC will have no effect on Peru’s GDP and vice versa over the sample period. Besides, the GC test confirmed a bidirectional relationship between Tr and GDP (validating both the Tr-led GDP and GDP-led Tr hypotheses). Second, there is cointegration in all variables, it is noted that Tr and NGC are drivers of GDP in Peru in the long-run (LR), verifying that NGC has a positive impact on GDP in LR, while for Tr results showed that, in the LR, the value of Tr from the previous year has a positive effect on the current value of GDP; and that in the short-run, the current value of Tr has a positive effect on GDP. Last, the GC test also validated a neutrality causal relationship between NGC and Tr, allowing us to conclude that policies to preserve or increase NGC will not affect Peru’s Tr or vice versa during the study period.

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Why is it important?

While the literature on the nexus between natural gas consumption and economic growth is extensive, there is a lack of research analyzing its dynamic impact in the case of Peru; in our country, no research has analyst the effect of atural gas consumption (NGC) and trade openness (Tr) on economic growth (EG) in this context. This study aims to fill this gap in the literature by making three main contributions: (1) broaden the empirical literature on the NGC–EG nexus; (2) provides empirical evidence that allows determining the causal direction between the economic variables analyzed, with the aim of providing guidelines to public policy designers for the creation and implementation of measures that guarantee SDe; and (3) examine whether Tr’s contribution to EG is direct or indirect.

Perspectives

Writing this research article has been very rewarding, as I have had the valuable collaboration of excellent co-authors from whom I have learned a lot. Both my colleagues and I hope that this article will allow the general public to appreciate the usefulness of energy economics in the analysis of the relationship between energy and economic growth, and to understand how its analytical and empirical tools and methods can guide the State and policy makers in the formulation and implementation of appropriate economic, energy and environmental policies that guarantee the sustainable growth of countries. We propose the following as future lines of research: (i) Estimate the impact of natural gas consumption on CO2 emissions, (ii) Analyze how the use of natural gas, as a substitute for fossil fuels with higher levels of polluting emissions, would affect the GDP, (iii) Estimate a non-linear dynamic association between natural gas consumption, GDP, and other variables (iv) Examine the relationship between GDP and energy sources other than natural gas, considering non-energy variables, (v) Estimate the relation between GDP and CO2 emissions, considering renewable and non-renewable energy variables, and other variables.

Professor Ciro Eduardo Bazán Navarro
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This page is a summary of: Natural gas, trade openness and economic growth in Peru: 1965–2022, Energy Strategy Reviews, May 2024, Elsevier,
DOI: 10.1016/j.esr.2024.101428.
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