CAUSALITY BETWEEN ENERGY CONSUMPTION AND ECONOMIC GROWTH: LITERATURE REVIEW

Pavle Jakovac
1Ph.D., Assistant professor, University of Rijeka, Faculty of Economics, Ivana Filipovica 4, 51000 Rijeka, CROATIA, pavle.jakovac@efri.hr

Abstract

Although the mainstream theory of economic growth pays little (or no) attention to the role of energy in economic growth, during the last two decades there have been a number of papers dealing with the causality between economic growth and energy consumption. Strong interdependence and causality between economic growth and energy consumption is a stylized economic fact, but the existence and direction of causality is still not clearly defined. Broadly speaking, all papers could be divided in two groups. The first one consists of papers that argue that energy is a crucial input of production and a necessary requirement for economic and social development. On the other hand, the other group of papers argued that energy has no significant impact. The lack of consensus on whether economic growth results in energy consumption or is energy consumption the stimulant of economic growth has aroused the curiosity and interest among economists and analysts to investigate the direction of causality between these variables. The results of such studies are often contradictory. This can be explained by different econometric methodologies, different data set and different countries’ characteristics. Although new and more sophisticated econometric methods for (better) identification and understanding of causality were developed over the years, an increasing number of published empirical studies regarding interconnectedness of energy consumption and GDP still have inconsistent results. A lack of compliance on what kind of causal relationship actually exists can result in inadequate implementation of appropriate economic and energy policy. Therefore, the aim of this paper is to give an overview of the existing literature with subsequent conclusions and guidelines for future research.

Keywords: energy consumption, economic growth, causality literature.



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CITATION: Abstracts & Proceedings of INTCESS 2018- 5th International Conference on Education and Social Sciences, 5-7 February 2018- Istanbul, Turkey

ISBN: 978-605-82433-2-3