Energy Use and GDP in Israel
Journal of Sustainable Development, Vol. 8, No. 9, 2015, 89-96, DOI: 10.5539/jsd.v8n9p89, ISSN: 1913-9071
8 Pages Posted: 14 Dec 2015
Date Written: 2015
The paper aims to study the relationship between energy use and GDP in the period 1971-2007 for Israel with a time-series approach. Stationarity and unit root tests reveal that both series are non-stationary, or I(1). Moreover, since both series show the presence of a structural break, the Gregory and Hansen cointegration test has been conducted. The results evidence the presence of a long-run relationship. Causality tests reveal that the “conservation hypothesis” emerges, since the causality flow runs from aggregate income to energy use. The IRFs analysis evidences that a shock to the energy use affects GDP for one period, but dies out very quickly. While shocks to GDP create a smaller but significant response in the energy use, although it falls to zero in few periods. Finally, we calculate with an ECM that the total long-run multiplier is 0.95. The energy use will increase to correct the disequilibrium, with 68% of the (remaining) deviation corrected in each subsequent time period. In addition, a one-unit increase in the GDP immediately produces a 0.18 unit increase in the energy use.
Keywords: energy use, GDP, time series, Israel
JEL Classification: B22, C22, N54, Q43
Suggested Citation: Suggested Citation