Energy Consumption and GDP in Italy: Cointegration and Causality Analysis

Abstract

The aim of this article was to assess the empirical evidence of the nexus between GDP and energy consumption for Italy during the period 1970-2009, using a time series approach. After a brief introduction, a survey of the economic literature on this issue is shown, before discussing the data and introducing some econometric techniques. Stationarity tests reveal that both series are nonstationary, or I(1). Moreover, a cointegration relationship is found between the two variables. The short-run dynamics of the variables show that the flow of causality runs from energy use to GDP, and there is a long-run bidirectional causal relationship (or feedback effect) between the two series. Consequently, we conclude that energy is a limiting factor to GDP growth in Italy and that energy conservation policy should be formulated and implemented wisely.

Keywords: Energy policies; Energy consumption; GDP; Stationarity; Cointegration; Causality; Italy

JEL Classification: B22; C22; N54; Q43