The relationship between primary energy consumption and economic growth in Turkey: A dynamic analysis

Energy, with its increasing importance and demand from industrial revolution and its compulsory characteristic for commodity produce process, is a source. Depending on Turkey's increasing demand and energy need, it is important to examine the relationship between energy consumption and growth in order to determine the policies that direct Turkey's economy. The aim of this study is to examine the affect of economic growth between 1970 and 2016 by using data of primary energy consumption, real GDP and real capital stock. During that examination, Zivot-Andrews, Lumsdaine Papell and Lee Strazicich unit-root tests has been used. This work presents both the long term relationship of series under structural breaks with Hatemi-J cointegration analysis and FMOLS analysis, the short term relationship of series under structural breaks with VECM model. As a result of analysis, the study finds positive and significant relationship between primary energy consumption and real GDP not only in short term but also in long term. In addition, the relationship among variables has been examined by Toda-Yamamoto causality test which shows one-way causality from primary energy consumption to real GDP. After these tests, as a final remark, dynamic relation among variables has been estimated by time-varying parameter method known as Kalman Filter. As a result of dynamic test, the study found that primary energy consumption affects the growth in a positive direction but this positive influence gradually decreases in time. Key Words: Primary Energy Consumption; Economic Growth; Cointegration with Structural Break; Kalman Filter