Energy Consumption and Economic Growth in Turkey: Cointegration and Causality Analysis

by Kaplan, Muhittin and Ozturk, Ilhan and Kalyoncu, Huseyin
Published in Romanian Journal of Economic Forecasting
, 2011, volume 14 issue 2, 31-41

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Abstract

This paper examines the causal relationship between energy consumption and economic growth for Turkey during 19712006. We employed two multivariate models, namely demand model and production model, based on vector error correction model. Then, we tested Granger causality after finding cointegration among variables for the both models. The results indicate that energy consumption and economic growth are cointegrated and there is bidirectional causality running from energy consumption to economic growth and vice versa. This means that an increase in energy consumption directly affects economic growth and that economic growth also stimulates further energy consumption. Consequently, we conclude that energy is a limiting factor to economic growth in Turkey and, hence, shocks to energy supply will have a negative impact on economic growth and vice versa.

Keywords: Energy consumption, Economic growth, Causality, Cointegration, Turkey
JEL Classification:
C3, O4, Q43