Examining Asymmetric Behavior Between Energy Consumption and Economic Growth in Taiwan

Abstract

Energy consumption growth has recently been higher than economic growth in Taiwan, worsening energy efficiency. This article utilizes the momentum-threshold autoregressive cointegration method to examine the long-run equilibrium relationship between economic growth and energy consumption growth, particularly focusing on the most energy-consuming sectors in Taiwan. Allowing for a threshold effect sheds new light on the explanation of the non-linear characteristics of the energy-growth link. The results indicate that economic growth is non-linearly cointegrated with energy consumption when the asymmetric adjusting behavior is confirmed. Specifically, we find that the deviations adjust persistently toward equilibrium in a relative energy efficiency regime for the aggregate-level, while for the sector level in a relative energy inefficiency regime. The government authority should conduct effective energy demand-side management to improve energy efficiency.

Keywords:

• asymmetric adjustments
• energy efficiency
• momentum-threshold autoregressive (M-TAR)
• non-linearity
• threshold cointegration

Notes

Note: (***), (**), and (*) in ADF tests respectively indicate the rejection of the null hypothesis of series has a unit root at 1%, 5%, and 10% levels of significance, while in KPSS tests indicate the rejection of the null hypothesis of series is stationary. The numbers inside the brackets are the optimum lag lengths determined using AIC in ADF tests and the bandwidth is used using the Newey-West method in KPSS tests.

Note: Values for ρ₁ and ρ₂ in the parentheses are t-statistic. τ is the estimated threshold. For the Φ*_μ test statistic (i.e., test for the null hypothesis of ρ₁ = ρ₂ = 0), critical values are approximately 5.20 for the 10% significance level, 6.28 for the 5% significance level, and 8.82 for the 1% significance level. Lags denote the lag order of the differenced residuals calculated from the base model. Q(4) is the Ljung-Box statistic that the first 4 of the residual autocorrelations are jointly equal to 0 with the significance level in parentheses. Levels of significance are indicated by (***) and (**) for 1% and 5%, respectively.