Energy Consumption and Economic Growth in the European Union: A Causality Analysis
Energy Consumption and Economic Growth in the European Union: A Causality Analysis

Summary/Abstract: Energy sector is one of the most important matters in the economic policies of the European Union since it has a significant impact on the quality of life and economic growth. The aim of this paper is to examine the causal relationship between energy consumption and economic growth in the European Union, based on the data from the period of 1960–2015. Using a Granger causality test, empirical results clearly indicate that energy consumption contributed to economic growth in the European Union. More precisely, an increase in energy consumption led to an increase in GDP per capita growth in the next period. This relationship is often called a growth hypothesis, which implies that energy consumption can stimulate economic growth. This research also analyzed the opposite relationship: the impact of economic growth on the change in energy consumption, which is called conservation hypothesis. However, this analysis has not proved such an impact in the considered period. The vector autoregression model (VAR) was used in the dependency analysis. In addition, an analysis of the impulse response shows the behavior of both processes as a result of a unitary, unexpected change in one of them.

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