Energy, Debt, and Growth: Time Series Evidence on Causality in OECD European Countries

Abstract

In this paper, we explore the causal relationships between energy, debt, and growth for a selection of nine OECD European countries. This examination enables us to draw lessons and deduce implications regarding the interconnections between these variables, helping us determine whether they evolve independently, or are mutually related. To conduct this analysis, we utilize annual data and employ econometric techniques, including vector-autoregressive (VAR) models, as well as Granger and Toda-Yamamoto causality tests, applied to specific countries within the group. Our key findings provide significant insights, enabling us to categorize the countries by their levels of indebtedness and energy independence. The inclusion of energy supply results in a more coherent segmentation of countries, consistent with descriptions in the literature. This classification provides a clearer understanding of the economic and energy dynamics within these nations and helps inform policy decisions aimed at managing debt levels and enhancing energy security.