An Empirical Analysis of the Causal Relations between Economic Growth, Electricity Consumption, and Carbon Dioxide Emissions in Korea

Abstract

There have been increasing concerns over the possibility of negative impacts on economic growth due to decreases in electricity consumption. Nevertheless, it is argued that electricity consumption must be cut down in order to reduce the global green house gases such as carbon dioxide. This article analyzes the causal relations between economic growth, electricity consumption, and carbon dioxide emissions in Korea, based on the data for the period of 1978-2010. We applied unit root testing, co-integration testing, and a vector error correction model (VECM). The results suggest a bilaterally strong causal relationship between GDP and electricity consumption over the long term. GDP was found unilaterally caused from CO₂ emissions over both short and long terms. We also observed that electricity consumption was unilaterally caused from CO₂ emissions in the long term. As increases in electricity consumption have a positive impact on economic growth, and not on carbon dioxide emissions, this should be considered when developing policies in this area.