THE CAUSAL RELATIONSHIP BETWEEN ENERGY CONSUMPTION AND GDP IN TURKEY

Abstract

This paper attempts to investigate the short-run and long-run relationship and causality between energy consumption and economic growth during 1960-2006 period for Turkey. Johansen and Juselius cointegration method and vector error correction model (VECM) have been employed to examine this issue. After finding cointegration among variables, a VECM is estimated and the Granger causality tests were carried out based on a VECM. The results have shown that there is no short-run causality in both energy consumption and GDP models. The results also confirmed that there is unidirectional long-run causality among variables of interest and the direction of long-run causality is running from per capita GDP to per capita energy consumption. As a result, conservation hypothesis which postulates unidirectional causality from economic growth to energy consumption is confirmed for Turkey. Taken together, these empirical findings involve valuable information for policy makers.