Empirical Analysis on Economic Growth and Energy Consumption Relationship in Croatia¹

Abstract This paper investigates the causal relationship between economic growth and energy consumption in Croatia for the period 1952-2010. Using Chow breakpoint test we identified a structural break in the year 1989. Therefore, we have conducted our analysis on two sub-samples. The first one refers to the period 1952-1989 while the second one refers to the period 1993-2010. The years between 1990 and 1992 have been omitted from the analysis due to massive damage to the Croatian economy caused by the war at that time. Our findings suggest that there is a bidirectional feedback in the short-run and that causality runs from energy consumption to economic growth in the long-run in the first sub-sample. At that time, especially in mid 1970s, Croatia became a medium developed industrial country with the industry sector as the biggest consumer of energy so energy consumption played an important role in the growth process. After the structural break, we found a unidirectional causality running from economic growth to energy consumption. In this case, energy conservation policies together with the establishment of a competitive energy market may be feasible with little or no detrimental side effects to economic growth and employment.

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