Energy Consumption-Economic Complexity Relationship: an Application on EU Countries and Türkiye

Abstract

Objective: This study aims to estimate the relationship between energy consumption and economic complexity in 25 European Union member states and Türkiye from 1995 to 2020.   Theoretical Framework: The causality relationship between these concepts can be discussed in terms of four theorems (neutrality hypothesis, growth hypothesis, conservation hypothesis, and feedback hypothesis). The lack of a causal relationship between economic complexity and energy consumption is explained by the neutrality hypothesis. The growth hypothesis points to a unidirectional correlation from energy consumption to economic complexity. In the contrary case, a unidirectional causality from economic complexity to energy consumption is the subject of the conservative hypothesis. Finally, the feedback hypothesis reveals the existence of a two-way causal relationship between economic complexity and energy consumption (Gorus ve Aydin, 2019: 816; Dogan: 2015: 535; Liu vd., 2021: 3).   Method: First, different approaches explaining the relationship between economic complexity and energy consumption in the relevant literature were examined to create the empirical analysis framework. After the specification of the appropriate model, pooled ordinary least square model, fixed effects model and random effects model were used to estimate the relationship between energy consumption and economic complexity within the country sample. The study investigated the relationship between fossil energy consumption and economic complexity using Emirmahmutoğlu & Köse (2011) panel Granger causality test.   Results and Discussion: According to the analysis results, the growth hypothesis appears valid for EU Member States and Türkiye.   Research Implications: This result reveals that fossil energy consumption plays an important role in increasing economic complexity, energy conservation policies negatively impact economic complexity, and countries in this situation are highly dependent on energy.   Originality/Value: The empirical literature on the relationship between energy consumption and economic complexity is limited. In this study, where the subject of the research is discussed from an empirical perspective, the fact that 25 member countries of the European Union and Turkey were selected as samples increases the originality value of our study.