Abstract:

This paper tests the causality relationship existing between electrical power consumption and economic growth in Turkey and Italy by employing a Frequency Domain Causality approach over the period of 1961-2012. The two countries represent a very interesting case-study, since Turkey is an important bridge and outlet for transporting oil and natural gas from Central-Asia to world markets. Italy, however, is one of the least energy intensive countries in the world, mainly due to the high level of taxation in the domestic energy market, which is employed to promote energy efficiency and to reduce energy imports. Previous works, which have analysed the income-energy demand nexus in the two countries separately, have achieved mixed and inconsistent results about the direction of the causality. Our findings show a lack of any causality relationship from electricity consumption to economic growth in Turkey, despite the existence of a significant causality relationship from economic growth to electricity consumption in the long run. While in Italy, electricity consumption seems to cause economic growth in the short, medium and long terms.

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