Threshold effects of energy consumption on economic growth in Turkey

Abstract

In this study3, the relationship between energy consumption and economic growth, and the effect of energy intensity level on this relationship are investigated for the period 1975-2013 for Turkey using recently developed Threshold Autoregressive (TAR) Models that provide appropriate procedures for estimation and inference. Although the majority of studies in the relevant literature support the view that energy consumption may promote economic growth, the empirical findings, based on the estimation of the threshold model, reveal evidence of threshold effects related to the energy consumption in Turkey. According to the analysis results, estimated value of the threshold is 0.191 for energy intensity level. The findings indicate that an energy consumption rate above the threshold energy density level adversely affects economic growth, and a consumption rate below the threshold level positively affects economic growth. These results show that when the optimal levels of energy density, which is one of the important indicators of energy efficiency, are exceeded, energy consumption considerably hinders economic growth. In this regard, political authorities and decision-makers should not ignore threshold levels within the context of energy density while determining energy policies. This is because this condition has a fundamental role in both increasing the effectiveness of implemented economic policies and realizing sustainable economic growth which has a significant place in stability. © 2016, ASERS Publishing House. All rights reserved.