Revisiting the Energy Consumption-Growth Nexus for Croatia: New Evidence from a Multivariate Framework Analysis
This paper applies the most recently developed autoregressive distributed lag (ARDL) co-integration procedure to re-investigate co-integration and the causal relationship between energy consumption and real GDP within a multivariate framework that includes capital stock and labor input for Croatia during the 1952-2011 period. The empirical results fully support a positive longrun co-integrated relationship between production inputs and real GDP and the important role of energy in economic growth. It is found that a unidirectional causality runs from total final energy consumption to real GDP in the long run and that a bidirectional causality in the short run, which means that energy is a necessary requirement for economic growth. Additionally, the reduction in energy consumption could adversely affect GDP in the short and long run. Therefore, Croatia should adopt a more vigorous economic policy aimed toward increasing investments in installed energy capacities and reforming the economic structure towards reindustrialization and more energy-efficient industries.(original abstract)
- Acaravci, A. (2010). The causal relationship between electricity consumption and GDP in Turkey: Evidence from ARDL bounds testing approach. Economic Research, 23 (2), 34-43.
- Akarca, A. T., Long, T. V. (1980). On the relationship between energy and GNP: a re-examination. Journal of Energy and Development, 5 (2), 326-331.
- Apostolakis, B. E. (1990). Energy-capital substitutability/complementarity: The dichotomy. Energy Economics, 12 (1), 48-58.
- Asafu-Adjaye, J. (2000). The relationship between energy consumption, energy prices and economic growth: time series evidence from Asian developing countries. Energy Economics, 22 (6), 615-625.
- Ayres, R. U., Warr, B. (2009). The economic growth engine. Cheltenham, UK: Edward Elgar Publishing.
- Bahovec, V., Erjavec, N. (2009). Uvod u ekonometrijsku analizu [Introduction to econometric analysis]. Zagreb: Element.
- Bartleet, M., Gounder, R. (2010): Energy consumption and economic growth in New Zealand: Results of trivariate and multivariate models. Energy Policy, 38 (7), 3508-3517.
- Berndt E. R. (1978). Aggregate energy, efficiency, and productivity measurement. Annual Review of Energy, 3, 225-273.
- Berndt, E. R., Wood, D. O. (1979). Engineering and econometric interpretations of energy-capital complementarity. American Economic Review, 69 (3), 342-354.
- Binh, P. T. (2011). Energy consumption and economic growth in Vietnam: Threshold co-integration and causality analysis. International Journal of Energy Economics and Policy, 1 (1), 1-17.
- Borozan, D. (2013). Exploring the relationship between energy consumption and GDP: Evidence from Croatia. Energy Policy, 59, 373-381.
- Chandran, V. G. R., Sharma, S., Madhavan, K. (2010). Electricity consumption-growth nexus: The case of Malaysia. Energy Policy, 38 (1), 606-612.
- Chang, T., Fang, W., Wen, L. F. (2001). Energy consumption, employment, output and temporal causality: Evidence from Taiwan based on co-integration and error-correction modeling techniques. Applied Economics, 33 (8), 1045-1056.
- Chontanawat, J., Hunt, L. C., Pierse, R. (2008). Does energy consumption cause economic growth? Evidence from a systematic study of over 100 countries. Journal of Policy Modeling, 30 (2), 209-220.
- Chow, G. C. (1960). Tests of equality between sets of coefficients in two linear regressions. Econometrica, 28 (3), 591-605.
- Croatian Bureau of Statistics (2012). Statistical yearbook of Croatia. Retrieved from http://www.dzs.hr/Hrv_Eng/ljetopis/2012/sljh2012.pdf.
- Dantama, Y. U., Abdullahi, Y. Z., Inuwa, N. (2012). Energy consumption-economic growth nexus in Nigeria: An empirical assessment based on ARDL bound test approach. European Scientific Journal, 8 (12), 141-157.
- Dergiades, T., Tsoulfidis, L. (2011). Revisiting residential demand for electricity in Greece: New evidence from the ARDL approach to co-integration analysis. Empirical Economics 41 (2), 511-531.
- Dickey, D. A., Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Society, 74, 427-431.
- Doornik, J.A., Hansen, H. (1994). An omnibus test for univariate and multivariate normality. Oxford Bulletin of Economics and Statistics, 70, 927-939.
- Druzic, I., Tica, J. (2002). Dinamika i kontroverze gospodarskog razvitka Hrvatske [Dynamics and controversy of Croatia's economic development]. In I. Druzic (Ed.), Stabilizacija-participacija-razvoj, Zbornik radova znanstvenog skupa povodom 80. obljetnice rodjenja akademika Jakova Sirotkovica [Scientific conference proceedings in the occasion of the 80th birth anniversary of the academician Jakov Sirotkovic]. (pp. 107-125). Zagreb: Faculty of Economics, University of Zagreb.
- Elliott, G., Rothenberg T. J., Stock, J. H. (1996). Efficient tests for an autoregressive unit root. Econometrica, 64 (4), 813-836.
- Energy Institute Hrvoje Pozar (December 2012). Energy in Croatia 1945-2011. Zagreb. Available at http://www.eihp.hr/.
- Engle, R. F., Granger, C. W. J. (1987). Co-integration and Error Correction: Representation, Estimation and Testing. Econometrica, 55 (2), 251-276.
- Erol, U., Yu, E. S. H. (1987). Time series analysis of the causal relationships between US energy and employment. Resources Energy, 9, 75-89.
- Esso, L. J. (2009). Co-integration and causality between financial development and economic growth: evidence from ECOWAS countries. European Journal of Economics, Finance and Administrative Sciences, 16, 112-122.
- Fatai, K., Oxley, L., Scrimgeour, F. (2004). Modeling the causal relationship between energy consumption and GDP in New Zealand, Australia, India, Indonesia, the Philippines and Thailand. Mathematics and Computer in Simulation, 64 (3), 431-445.
- Gelo, T. (2009). Causality between economic growth and energy consumption in Croatia. Proceedings of Rijeka Faculty of Economics - Journal of Economics and Business, 27 (2), 327-348.
- Ghali, K. H., El-Sakka, M. I. T. (2004). Energy use and output growth in Canada: A multivariate cointegration analysis. Energy Economics, 26 (2), 225-238.
- Glasure, Y. U. (2002). Energy and national income in Korea: Further evidence on the role of omitted variables. Energy Economics, 24 (4), 355-365.
- Granger, C. W. J. (1969). Investigating causal relationship by econometric models and cross-spectral methods. Econometrica, 37 (3), 424-438.
- Gujarati, D. N., Porter, D. C. (2009). Basic econometrics (5th ed.). New York, NY: McGraw-Hill Companies Inc.
- Hall, R. E., Jones, C. I. (1999). Why do some countries produce so much more output per worker than others?. The Quarterly Journal of Economics, 114 (1), 83-116.
- Hannon, B. M., Joyce, J. (1981). Energy and technical progress. Energy 6, 187-195.
- Hondroyiannis, G., Lolos, S., Papapetrou, E. (2002). Energy consumption and economic growth: Assessing the evidence from Greece. Energy Economics, 24 (4), 319-336.
- Howarth, R. B. (1997). Energy efficiency and economic growth. Contemporary Economic Policy, 15 (4), 1-9.
- Johansen, S. (1988). Statistical analysis of co-integration vectors. Journal of Economic Dynamics Control, 12 (2-3), 231-254.
- Johansen, S., Juselius, K. (1990). Maximum likelihood estimation and inference on co-integration-with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52 (2), 169-210.
- Kamps, C. (2004). New estimates of government net capital stocks for 22 OECD countries 1960-2001 (Working paper No. 67). International Monetary Fund.
- Kouakou, A.K. (2011). Economic growth and electricity consumption in Cote d'Ivoire: Evidence from time series analysis. Energy Policy, 39 (6), 3638-3644.
- Kraft, J., Kraft, A. (1978). On the relationship between energy and GNP. Journal of Energy and Development, 3 (2), 401-403.
- Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., Shin, Y. (1992). Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root? Journal of Econometrics, 54 (1-3), 159-178.
- Kyriacou, G.A. (1991). Level and growth effects of human capital: a cross-country study of the convergence hypothesis (Working Papers No. 91-26).
- C.V. Starr Center for Applied Economics. Lee, C. C. (2005). Energy consumption and GDP in developing countries: A cointegrated panel analysis. Energy Economics, 27 (3), 415-427.
- Lütkepohl, H. (2005). New introduction to multiple time series analysis. Berlin: Springer-Verlag.
- Ljung, L. (1999). System identification - theory for the user (2nd ed.). Upper Saddle River, NJ: Prentice Hall.
- MacKinnon, J. G. (1996). Numerical distribution functions for unit root and co-integration tests. Journal of Applied Econometrics, 11 (6), 601-618.
- MacKinnon, J. G., Haug, A. A., Michelis, L. (1999). Numerical distribution functions of likelihood ratio tests for co-integration. Journal of Applied Econometrics 14 (5), 563-577.
- Maddala, G. S., Kim, I. M. (1998). Unit roots, co-integration and structural change. Cambridge, UK: Cambridge University Press.
- Masih, A. M. M., Masih, R. (1996). Energy consumption, real income and temporal causality: results from a multi-country study based on co-integration and error-correction modeling techniques. Energy Economics, 18 (3), 165-183.
- Masih, A. M. M., & Masih, R. (1997). On the temporal causal relationship between energy consumption, real income, and prices: Some new evidence from Asian-energy dependent NICs based on a multivariate cointegration/vector error-correction approach. Journal of Policy Modeling, 19 (4), 417-440.
- Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 37 (17), 1979-1990.
- Nelson, C. R., Plosser, C. I. (1982). Trends and random walks in macroeconomic time series - some evidence and implications. Journal of Monetary Economics, 10 (2), 139-162.
- Ng, S., Perron, P. (2001). Lag length selection and the construction of unit root tests with good size and power. Econometrica, 69 (6), 1519-1554.
- Oh, W., Lee, K. (2004). Causal relationship between energy consumption and GDP revisited: the case of Korea 1970-1999, Energy Economics, 26 (1), 51-59.
- Ouédraogo, I. M. (2010). Electricity consumption and economic growth in Burkina Faso: A co-integration analysis. Energy Economics, 32 (3), 524-531.
- Ozturk, I., Acaravci, A. (2010). The causal relationship between energy consumption and GDP in Albania, Bulgaria, Hungary and Romania: Evidence from ARDL bound testing approach. Applied Energy, 87 (6), 1938-1943.
- Ozturk, I., Acaravci, A. (2011). Electricity consumption and real GDP causality nexus: Evidence from ARDL bounds testing approach for 11 MENA countries. Applied Energy 88 (8), 2885-2892.
- Pasalic, Z. (1999). Osnove hrvatske gospodarstvene infrastructure [Basics of Croatian economic infrastructure]. Split:Univeristy of Split, Faculty of Economics.
- Pesaran, M. H., Shin, Y., Smith, R. J. (2001),Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16 (3), 289-326.
- Phillips, P. C. B., Perron, P. (1988). Testing for a unit root in time series regressions. Biometrica, 75 (2), 335-346.
- Raguz, I., Druzic, I., Tica, J. (2011). Human capital in growth accounting: The case of Croatia. Journal of International Scientific Publications: Educational Alternatives, 9, 185-198.
- Sari, R., Ewing, B. T., Soytas, U. (2008). The relationship between disaggregate energy consumption and industrial production in the United States: An ARDL approach. Energy Economics, 30 (5), 2302-2313.
- Shahbaz, M., Tang, C.F., Shahbaz Shabbir, M. (2011). Electricity consumption and economic growth nexus in Portugal using cointegration and causality approaches. Energy Policy, 39 (6), 3529-3536.
- Soytas, U., Sari, R. (2006). Energy consumption and income in G-7 countries. Journal of Policy Modeling, 28 (7), 739-750.
- Soytas, U., Sari, R. (2007). The relationship between energy and production: Evidence from Turkish manufacturing industry. Energy Economics, 29 (6), 1151-1165.
- Stern D. I. (1997). Limits to substitution and irreversibility in production and consumption: a neoclassical interpretation of ecological economics. Ecological Economics, 21 (3), 197-215.
- Stern, D. I. (1999). Is energy cost and accurate indicator of natural resource quality? Ecological Economics, 31 (3), 381-394.
- Stern, D. I. (2000). A multivariate cointegration analysis of the role of energy in the US macroeconomy. Energy Economics, 22 (2), 267-283.
- Stresing, R., Lindenberger, D., Kümmel, R. (2008). Cointegration of output, capital, labor and energy (Working Paper, No. 08.04). Institute of Energy Economics at the University of Cologne. Retrieved from http://www.ewi.unikoeln.de/fileadmin/user_upload/Publikationen/Working_Paper/EWI_WP_08-04_Cointegration-of-Output.pdf.
- Tang, C. F., Shahbaz, M. (2011). Revisiting the electricity consumption-growth nexus for Portugal: Evidence from a multivariate framework analysis (Paper No. 28393). Munich Personal RePEc Archive. Retrieved from http://mpra.ub.uni-muenchen.de/28393.
- Tintner, G., Deutsch, E., Rieder, R., Rosner, P. (1977). A production function for Austria emphasizing energy. De Economist, 125 (1), 75-94.
- Toda, H. Y. (1994). Finite sample properties of likelihood ratio tests for co-integration ranks when linear trends are present. The Review of Economics and Statistics, 76 (1), 66-79.
- Vlahinic-Dizdarevic, N., Zikovic, S. (2010). The role of energy in economic growth: the case of Croatia. Zbornik radova Ekonomskog fakulteta u Rijeci, 28 (1), 35-60.
- Winters, P. R. (1960). Forecasting sales by exponentially weighted moving averages. Management Science, 6 (3), 324-342.
- World Bank (2012). World development indicators 2012. Washington, D.C., World Bank.
- Yang, H. Y. (2000). A note on the causal relationship between energy and GDP in Taiwan. Energy Economics 22 (3), 309-317.
- Yu, E. S. H., Hwang, B. K. (1984). The relationship between energy and economic growth in Korea. Applied Energy, 83, 1181-1189.
- Yu, E. S. H., Choi, J. Y. (1985). The causal relationship between energy and GNP: an international comparison. Journal of Energy and Development, 10 (2), 249-272.
- Zachariadis, T. (2007). Exploring the relationship between energy use and economic growth with bivariate models: New evidence from G-7 countries. Energy Economics, 29 (6), 1233-1253.
- Zikovic, S., Vlahinic-Dizdarevic, N. (2011). Oil Consumption and Economic Growth Interdependence in Small European Countries. Economic research 24 (3), 15-32.