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http://dx.doi.org/10.5351/KJAS.2012.25.1.089

Investigation on Granger Causality between Economic Growth and Demand for Electricity in Korea: Using Quarterly Data  

Baek, Moon-Young (Department of Economics, Yonsei University)
Kim, Woo-Hwan (Department of Accounting and Finance, Monash University)
Publication Information
The Korean Journal of Applied Statistics / v.25, no.1, 2012 , pp. 89-99 More about this Journal
Abstract
This study investigates the Granger-causality between economic growth and demand for electricity in Korea, using two quarterly time-series data (real GDP and electricity consumption) for 1970:Q1 through 2009:Q4. We apply Hsiao's sequential procedure to identify a vector autoregressive model to a decision of the optimal lags in the vector error-correction model because the two time-series data contain unit roots respectively and they are cointegrated. According to the empirical results in this study, we find that Hsiao's approach to the Granger-causality indicates a bidirectional causal relation between economic growth and demand for electricity in Korea. Following the Granger and Engle's approach, we also find the statistical evidence on (1) short-run bidirectional causality between real GDP and electricity consumption, (2) bidirectional strong causality between them, and (3) long-run unidirectional causality running from demand for electricity to economic growth. Our results show an inconsistency with the existing studies on Korea's case; however, the results appear to provide more meaningful policy implications for the Korean economy and its strategy of sustainable growth.
Keywords
Economic growth; demand for electricity; Granger-causality; cointegration; error-correction model; Hsiao's sequential procedure; Granger-causality test;
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