This paper investigates the causal relationship between energy consumption, economic growth and exports for China and India employing dynamic econometric models with annual data for the period 1980-2011. Unit root test, lag length selection, co-integration test, and Granger causality test are conducted to reveal the relationships. The results indicate that there is a unidirectional causality running from energy consumption to exports and also from energy consumption to economic growth in China. Therefore, energy should be fulfilled to the production sectors to support exports in terms of economic growth. Moreover, investments on alternative energy production should be improved. VAT reduction, tax incentives and R&D subsidies are form of government support in renewable energy investment.
Additionally, this research reveals that there is a unidirectional causality flowing from exports to energy consumption, economic growth to energy consumption, and export to economic growth in India. Hence, the evidences seem to support the growth-led-export hypothesis in India for the period analyzed. The implication based on the results is to implement energy conservation policies, including efficiency improvement and energy mix policies, which are designed to reduce energy consumption without sacrificing the country’s economic growth.
