ANOTHER LOOK AT THE ELECTRICITY CONSUMPTION-GROWTH NEXUS IN CROATIA: HAS THE CONSENSUS FINALLY BEEN REACHED?
1Ph.D., Assistant professor, University of Rijeka, Faculty of Economics, Ivana Filipovica 4, 51000 Rijeka, CROATIA, firstname.lastname@example.org
During the last two decades, a number of papers have addressed the causality between economic growth and electricity consumption. Although a strong interdependence and causality between economic growth and electricity consumption represent a stylized economic fact, the existence and direction of the causality is still not clearly defined. Most studies have been based on a bivariate approach that explores the causal relationship between electricity consumption and output (GDP). This approach has limitations and is not able to capture the multivariate framework within which the changes in electricity use are frequently countered by the substitution of other factors of production, resulting in an insignificant overall impact on output. The lack of consensus on whether economic growth results in electricity consumption or is electricity the stimulant of economic growth has aroused the curiosity and interest among economists and analysts to investigate the direction of causality between these variables. Over time, various empirical studies have focused on different countries or groups of countries (both developed and developing countries as well as the so-called emerging economies), time periods, main (and proxy) variables and quantitative methods. The results of such studies are often contradictory. This can be explained by different econometric methodologies, different data set and different countries’ characteristics. The aim of this paper is to analyse the available data on GDP and electricity consumption in Croatia for the last six decades using the so-called bootstrap approach within a multivariate framework that includes capital stock and labour (and dummy variables to reflect structural breaks in the data). The time period used in this analysis is 1952-2015, which covers a long-term period during which substitution among production inputs could occur. Therefore, the main aim of the paper is to empirically determine whether a causal link exists among capital stock (as a proxy for capital), employment (as a proxy for labour), total electricity consumption (without transmission and distribution losses) and economic growth in Croatia. In addition to empirical results, policy implications and recommendations for future research will also be presented in the paper.Keywords: electricity consumption, economic growth, causality literature, empirical results, Croatia.
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