Abstract
Industrialization is the engine of economic growth. Most of the developing countries shifted from agriculture towards industrialization with the motivation of pursuing higher economic growth since the last few decades. Past studies have shown that there is clear evidence of a strong correlation between energy consumption and economic growth. Hence, this paper aims to contribute on the topic of energy consumption and how it impacts the level of economic growth through industrialization. Our ?ndings show that the association between use of energy in the manufacturing sector, which has been proxied using the amount of recovered energy and petroleum allocated to the manufacturing sector, and the development of the manufacturing sector, which has been proxied using the level of GDP on manufacturing sector, is not a mere correlation. Estimates using lagged independent variables prove that an increase in use of energy in the manufacturing sector has a positive and, to some extent, significant impact on the expansion of the manufacturing sector. Furthermore, this study also ?nds that the effect of use of energy on manufacturing sector on the expansion of manufacturing sector seems to be weaker and even becomes insigni?cant on the Non-ASEAN Plus countries. One factor that might explain such a phenomenon is the difference in the commitment of each country to allocate energy for the development of their manufacturing sector. The energy allocation refers to the share of energy which ?ows to the manufacturing sector instead to other non-manufacturing sectors, such as agriculture, services, or even consumption. Higher share of energy which flows to the manufacturing sector indicates a commitment by the government and/or the society to mobilize resources and energy to better leverage the development of the manufacturing sector which ultimately leads to the economic growth. Another factor that might contribute to higher share of energy use is wage as lower wage in ASEAN Plus countries enables the ?rm and industry to hire more labor; hence expanding their scale of production. The bigger production scale implies they might have a higher economies-of-scale which is translated into a more efficient energy use.
