Frequency Domain Causality Analysis Between Energy Consumption and Economic Growth: The Case of Turkey
Chapter from the book:
Çevik,
E.
İ.
&
Kırcı Altınkeski,
B.
(eds.)
2023.
New Approaches in Granger Causality Testing.
Synopsis
Energy is the most basic input element in the modern industrial economy. Economic growth is closely related to energy consumption. In this study, it was aimed to investigate the relationship between energy consumption and economic growth with the causality test in the frequency domain, and to determine both the direction of the relationship and whether the direction of the relationship has changed in the short, medium and long term. In the study, the relationship between energy consumption and economic growth was examined with the help of frequency dimension causality test by using annual data for the 1968-2021 period for the Turkish economy. Before performing the Breitung and Candelon (2006) causality test, the VAR model was estimated using energy consumption and economic growth variables and the optimal lag number was determined.
According to the results obtained, only a long-term causality relationship was found from energy consumption to economic growth, while no causality relationship was found from economic growth to energy consumption. These results are consistent with the results found by Aydın (2020) and Rashed and Eren (2021). In line with the findings, energy consumption, which is a complementary element to labor and capital, will affect economic growth in the Turkish economy in the long run. In this context, it is important for decision makers to implement energy incentive policies. If energy raw materials can be offered to producers at low prices or with low tax rates, this will contribute positively to growth.