Journal of Social Science for Policy Implications

Revisiting the Energy Consumption-Growth Nexus for Croatia: New Evidence from a Multivariate Framework Analysis
Professor Nela Vlahinic, Pavle Jakovac

Abstract
This paper applies the most recently developed autoregressive distributed lag (ARDL) cointegration procedure to re-investigate cointegration and the causal relationship between energy consumption and real GDP within a multivariate framework that includes capital stock and labor input for Croatia during the 1952– 2011 period. The empirical results fully support a positive long-run cointegrated relationship between production inputs and real GDP and important role of energy in economic growth. It is found that there is a unidirectional causality running from total final energy consumption to real GDP in the long run and bidirectional causality in the short run. This means that energy is a necessary requirement for economic growth, as well as the reduction in energy consumption could adversely affect GDP in the short and long run. Therefore Croatia should adopt a more vigorous economic policy that should aim to increase investments in installed energy capacities and to reform economic structure towards re-industrialization and more energy-efficient industries.

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