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Energy Consumption and Economic Growth: Further Evidence from Taiwan

Author

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  • Chung-Wei Kao
  • Jer-Yuh Wan
Abstract
This paper investigates the nonlinear relationship between energy consumption and GDP in Taiwan. By applying the method of Gonzalo and Pitarakis (2006), we consider the possibility of significant threshold effects within the long-run relationship between the two variables, where the effect is trigged by changes in the phase of the business cycle. The Granger-causality test in a threshold model indicates the relationship between energy consumption and GDP is regime-dependent. A bidirectional relationship between these two variables is observed in the contractionary regime, implying that energy serves as an engine of economic growth and that reductions in energy use will have adverse effects on economic activities. On the other hand, a unidirectional causality running from GDP to energy consumption is detected in the expansionary regime. It indicates energy conservation is feasible in this regime with little or no detrimental effects on economic growth. The policy implications are that energy use and economic growth are jointly reinforcing each other during recessionary periods. However, in periods of high economic growth when energy consumption cannot bring about economic growth, energy conservation policies should be adopted with more aggressive thinking.

Suggested Citation

  • Chung-Wei Kao & Jer-Yuh Wan, 2017. "Energy Consumption and Economic Growth: Further Evidence from Taiwan," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(7), pages 165-178, July.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:7:p:165-178
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    References listed on IDEAS

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    Cited by:

    1. Hlalefang Khobai & Sanderson Abel & Pierre Le Roux, 2021. "A Review of the Nexus between Energy Consumption and Economic Growth in the BRICS Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 424-431.
    2. Mohamed A. Alshami & Ariba Sabah, 2020. "The Strategic Importance of Energy Consumption to Economic Growth: Evidence from the UAE," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 114-119.
    3. Qusai Mohammad Qasim Alabed & Fathin Faizah Said & Zulkefly Abdul Karim & Mohd Azlan Shah Zaidi & Mohammed Daher Alshammary, 2021. "Energy–Growth Nexus in the MENA Region: A Dynamic Panel Threshold Estimation," Sustainability, MDPI, vol. 13(22), pages 1-18, November.
    4. Jaka Sriyana, 2019. "Dynamic Effects of Energy Consumption on Economic Growth in an Emerging Economy," International Journal of Energy Economics and Policy, Econjournals, vol. 9(4), pages 283-290.

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    More about this item

    Keywords

    energy consumption; economic growth; cointegration; asymmetry; threshold;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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