Exploring the causal relationship between energy consumption and economic growth is important in energy economics. We performed an empirical re-examination of the causal interactions between these two factors in South Korea. As most previous studies in South Korea overlook the nonlinear behavior of energy consumption and economic growth, we examine the possible nonlinear relationship between them in the time-frequency domain. Moreover, we provide additional features of their nonlinear relationship with volatility spillovers on a timescale. The empirical findings have different implications for short-run GDP fluctuations, medium-run business cycles, and long-run economic growth. A unidirectional nonlinear causal relationship exists from economic growth to energy consumption in the short and medium run. However, in the long run, there is no nonlinear causal relationship between them.
This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2021S1A5C2A02087244).We calculate the absolute values of yearly growth rate changes as a volatility proxy using the frequency band, and then compute the volatility spillover indexes. Table 8 presents the results of the net pairwise spillovers between EC and EG by frequency band. As for the high frequency, we observe short-run volatility spillover from EG to EC, with a net pairwise volatility spillover index of 5.13. This supports a nonlinear causal relationship in the short run. Similarly, it shows a relatively strong medium-run volatility spillover from EG to EC, with a net pairwise volatility spillover index of 14.67, which also supports the nonlinear causal relationship in the medium run. Finally, considering the small value of the net pairwise spillover index of 1.30, it presents a weak long-run volatility spillover from EG to EC. In the long run, even though there is a weak volatility transmission from EG to EC, a nonlinear causal relationship cannot be manifested significantly. Overall, our results on volatility spillovers conform to the nonlinear causal relationship, and volatility transmissions uncover a plausible source of the nonlinear linkage between EC and EG.Under these circumstances, an empirical study of the direction of causation between EC and EG has important implications for policymakers. Our nonlinear Granger causality tests show different implications for short-run GDP fluctuations, medium-run business cycles, and long-run economic growth. A nonlinear causal relationship exists from EG to EC in the short and medium runs. Causality results in the short and medium runs imply that reducing EC does not hinder EG. From the perspective of a short-term policy horizon, it is necessary to establish feasible action plans to immediately reduce pollutant emissions due to EC. In the medium run, EC does not affect economic activities, whereas business cycles do affect EC. Therefore, renewable energy use measures should be devised for a medium-run policy horizon of less than eight years. However, the absence of a nonlinear causal relationship between EC and EG in the long run, which supports the neutrality hypothesis, indicates that a relatively wider scope exists for more stringent energy conservation measures without severe negative impacts on EG. Thus, the government can pursue recent efforts to reduce greenhouse gas emissions by reducing EC without negative side effects. The fact that our findings support the neutrality hypothesis suggests that EG can be achieved concurrently with a decrease in EC. Thus, implementing energy conservation policies that reduce EC to limit CO2 emissions would not significantly impact Korea's EG.Donggeun Kim: Conceptualization (Idea and research design, formulating research goals), Data curation (Data collection and scrubing), Formal analysis (Performing linear and nonlinear causality tests, unit-root test, Breitung-Candelon spectral causality test), Funding acquisition (Research fund from the National Research Foundation of Korea), Investigation (Conducting a research process and evidence collection), Methodology (Developing empirical modeling), Project administration (Coordinating responsibility for the research activity), Software (Implementing statistical software), Supervision (Leadership responsibility), Validation (Verifying empirical results), Writing – original draft (Writing the initial draft), Writing – review & editing (Revising and writing the draft, proofreading the revised paper); Young-Joon Park: Conceptualization (Idea and research design, formulating research goals), Data curation (Decomposing the original date), Formal analysis (Performing wavelet decomposition, Calculating volatility spillover index), Investigation (Conducting a research process), Methodology (Developing empirical modeling), Software (Implementing statistical software), Validation (Verifying empirical results), Visualization (Drawing the conceptual figures of analytical and theoretical frameworks), Writing – original draft (Writing the initial draft), Writing – review & editing (Revising and writing the draft, proofreading the revised paper).
