Structural Breaks, Electricity Consumption and Economic Growth: Evidence from Turkey

by Acaravici, Ali
Published in Romanian Journal of Economic Forecasting
, 2010, volume 13 issue 2, 140-154

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This paper investigates the short-run and long-run causality issues between electricity consumption and economic growth in Turkey by using the co-integration and vector error-correction models with structural breaks. It employs annual data covering the period 1968–2005. The study also explores the causal relationship between these variables in terms of the three error-correction based Granger causality models. The empirical results are as follows: i) Both variables are nonstationary in levels and stationary in the first differences with/without structural breaks, ii) there exists a longrun relationship between variables, iii) there is unidirectional causality running from the electricity consumption to economic growth. The overall results indicate that “growth hypothesis” for electricity consumption and growth nexus holds in Turkey. Thus, energy conservation policies, such as rationing electricity consumption, may harm economic growth in Turkey.

Keywords: Electricity consumption, economic growth, structural breaks, cointegration,

JEL Classification:
C32, C52, Q43