Structural breaks, energy consumption, and economic growth revisited: Evidence from Taiwan

This paper studies the stability between energy consumption and GDP for Taiwan during 1954-2003. We use aggregate as well as various disaggregate data of energy consumption, including coal, oil, gas, and electricity, to employ the unit root tests and the cointegration tests allowing for structural breaks. Our main findings are: First, though gas consumption seems to have structural breaks in the 1960s, after considering the structural breaks, the series is a stationary variable when Taiwan adopted its expansionary export trade policy. Second, we find that different directions of causality exist between GDP and various kinds of energy consumption. The empirical result shows unanimously in the long run that energy acts as an engine of economic growth, and that energy conservation may harm economic growth. Third, the cointegration between energy consumption and GDP is unstable, and some economic events may affect the stability. Overall, we do find the structural breakpoints, and they look to match clearly with the corresponding critical economic incidents.