Nuclear Energy Consumption and Economic Growth in Taiwan

Abstract

This article tests the causal relationship between nuclear energy consumption and real gross domestic product for Taiwan for the period 1977–2007 within a vector autoregressive (VAR) framework by including capital and labor as additional variables. Using a modified version of the Granger causality test due to Toda and Yamamoto (1995), we find no causality running in any direction between economic growth and nuclear energy consumption, which suggested that the neutrality hypothesis is accepted. Innovation accounting (variance decomposition and impulse response function) analysis further confirms that nuclear energy consumption played a minor role in the economic development of Taiwan. The policy implication is that measures adopted to mitigate the adverse effects of nuclear energy consumption may be taken without harming economic growth. However, these results should be interpreted with care, as they may not be sufficiently robust enough to support the inference that nuclear energy consumption plays a minor role in the economic growth of Taiwan.

Keywords:

• causality
• nuclear energy consumption
• Taiwan
• Toda and Yamamoto procedure
• variance decomposition

Notes

¹In line with many researchers, in the absence of capital stock series, gross fixed capital formation has been used as proxy (see, Payne and Taylor, 2010; Wolde-Rufael and Menyah, 2010; Wolde-Rufael, 2010, and the literature therein).