The role of financial development on energy consumption in Turkey: A sectoral evidence

The purpose of this dissertation is to investigate the nexus between financial development and sectoral energy consumption in Turkey over the period 1989-2011. To this end, empirical models arised herein are estimated using mean group (MG) estimator which is developed in order to estimate heterogeneous coefficients in panel time series. Then, causal relationship between financial development and energy consumption is examined using heterogeneous Granger non-causality test proposed by Dumitrescu and Hurlin (2012). Findings obtained from linear models indicate that financial development affects energy consumption in pooled panel and transporation sector. Findings obtained from nonlinear models, however, reveal that the impact of financial development on the industrial energy consumption exhibits an inverted U-shaped pattern while it displays a U-shaped pattern in the case of residential and services and agricultural sector. Causality results, on the other hand, indicate the existence of feed back hypothesis in the pooled panel. Cross-sectional results, however, provide a support of conservation hypothesis in industrial, residential and services and transportation sectors. Key Words: Finacial development, energy consumption, Turkey, panel data analysis.