Economic Growth, Electricity Consumption and Foreign Dependence in Italy Between 1963–2007

Abstract

The energy sector is assuming an increasing importance in the global economy. As a consequence, there is a vast literature on the causal relation between energy use and others economic variables. In this article, the relationship between electricity consumption and economic growth for Italy using yearly data covering the period 1963–2007 is investigated. Unlike previous works, this article specifically concerns the causal link between the dynamics of gross domestic product and the use of electricity from different sources of production. Regarding dependence from foreign suppliers, the article tests the hypothesis of a causal relationship between economic growth and electricity imports. The results show a unidirectional causality from economic activity to other variables.

Keywords:

• energy and growth
• Granger causality
• Italy
• VECM

Notes

¹ Zachariadis (2007) found bidirectional causality studying primary and final electricity consumption with the VEC model and the ARDL approaches. Using the Toda–Yamamoto approach he found no evidence of any relationship.

²They used the standard Granger test, VEC model and Toda–Yamamoto approaches respectively.

³Because of the incompleteness of the series I will not consider nuclear and wind sources of generation.

⁴During the 1975 crisis, the real GDP loss was about 3%. The crisis exploded because of oil shocks in the international markets, high inflation (17%) and strong devaluation of Lira (the Italian currency before Euro).

⁵Consider that the average nuclear production in Europe (EU-27) is 29%. France produces 78% of energy with nuclear sources. (Source: Terna, 2009).

⁶The public referendum was taken in November 1987, eighteen months after the Chernobyl nuclear disaster.

⁷The variable is the average of the heating degree day (HDD) and cooling degree day (CDD) expressed in logarithm for three Italian weather stations: Piacenza, Roma and Messina. Temperatures of 18°C and 22°C were selected as realistic reference temperatures for calculating HDD and CDD, respectively.

⁸ADF tests available upon request.

⁹Causality can be tested by three different approaches: VEC, ARDL, and the Toda–Yamamoto method.

¹⁰Owing to the small sample size (45 observations) I choose AkaikeŜs information criterion (AIC) over SchwartzŜs Bayesian criterion to select the appropriate number of lags.

¹¹A more detailed discussion (IRF and VDC figures included) is available upon request.

¹²It is important to note that importing electricity is definitely profitable because of the lower foreign price. Setting the Italian price equal to 100, the price is 65 in Germany and Spain and 67 in Austria and France (AEEG, 2010).

¹³General conditions for the creation of a single Internal Electricity Market in Europe start with the Directives 96/92/EC and 2003/54/EC and the Regulation 1228/2003 (the latter will be replaced in 3/2011 from Reg. 714/2009).

¹⁴European Regional Initiatives (ERI), launched in by European Commission in cooperation with the European Regulators' Group for Electricity and Gas (ERGEG).