Energy Consumption and Growth : The case of Sweden for the industry and service sector

Abstract: This paper examines the relationship between energy and economic growth in the case of Sweden.  It analyzes the role energy plays in the level of economic activity. The prevailing economic theories focus more on other factors as important for the economic growth. The included statistical data shows that the total energy use in Sweden has declined in the last couple of years. This is mainly as a result of the shift in energy use to higher quality fuels, electricity, optimized production process and machinery, and increased use of renewable energy sources. This paper investigates the connection between total energy use and levels of economic activity in Sweden. Furthermore, it discusses Sweden’s energy policy activities and their economic and environmental implications. Instead of looking at the entire economy, as some earlier papers, the focus is placed on the industrial and service sectors. This gives the possibility to better analyze the implemented energy policies, showing their effectiveness at these sectors. Time series analysis is employed following a four step procedure. First it is the Augmented Dickey-Fuller test performed, followed by the Johansen test and the Vector Error Correction Model (VECM). The results from VECM are interpreted with the help of the Wald test. The results from this four step procedure showed univariate cointegration between Industry`s output and energy consumption and bivariate cointegration between Service`s output and energy consumption. The paper further shows that there is a relation between the types of energy used in the economic sectors and the sectors` productivity levels. This paper also aims to demonstrate the environmental and economic effects from such relation.