An investigation of co-integration and causality between energy consumption and economic activity in Taiwan

Abstract

Applying Hsiao'a version of the Granger causality method, this paper examines the causality between energy and GNP and energy and employment by applying recently developed techniques of co-integration and Hsiao's version of the Granger causality to Taiwanese data for the 1955–1993 period. The Phillips-Perron tests reveal that the series with the exception of GNP are not stationary and therefore differencing is performed to secure stationarity. The study finds causality running from GDP to energy consumption without feedback in Taiwan. It is also found that causality runs from GDP to energy but not vice versa.