Asymmetries in the dynamic interrelationship between energy consumption and economic growth: Evidence from Turkey

In this study we examine possible nonlinearities in dynamic interrelationship between energy consumption and economic growth in Turkey for the 1960-2010 period by using a smooth transition vector autoregressive model. In order to trace the effects of one variable on another, we calculate Generalized Impulse Response Functions (GIRFs). The computed impulse response functions demonstrate asymmetric effects of positive versus negative and small versus large energy consumption shocks on output growth and vice versa. Specifically, we find that negative energy shocks have a greater effect on output growth than positive energy shocks, and that big negative energy shocks affect output much more than small negative energy shocks. Similarly, we find that positive output shock has a greater effect on energy consumption whereas negative shocks have almost no effect on energy consumption. The results of this study have clear and important implications for energy economists and policymakers in Turkey.