Structural break, unit root, and the causality between energy consumption and GDP in Turkey

Abstract

This paper tries to investigate a series of unit root and causality tests to detect causality between the GDP and energy consumption in Turkey employing Hsiao's version of Granger causality method for the 1950-2000 period. The conventional unit root tests indicate the series are 1(l), whereas the endogenous break unit root tests proposed by Zivot and Andrews [Zivot, E. and Andrews, D.W.K., 1992, Further evidence on the great crash, the oil price shock, and the unit root hypothesis, Journal of Business and Economics Statistics 10, 251-270.] and Perron [Perron, P., 1997, Further evidence on breaking trend functions in macroeconomic variables, Journal of Econometrics 80, 355-385.] reveal that the series are trend stationary with a structural break. Therefore, it is inappropriate to take the first difference of the data to achieve stationarity. The main conclusion of this study is that there is no evidence of causality between energy consumption and GDP in Turkey based on the detrended data.