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Graphical Causality Test Approach to the Relationship Between Economic Growth, Energy Consumption, Foreign Trade Balance and Financial Development

Author

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  • Abdullah Gov

    (Istanbul Arel University, Faculty of Economics and Administrative Sciences, Department of Management Information Systems, Istanbul, Turkiye)

  • Veli Yilanci

    (Canakkale Onsekiz Mart University, Faculty of Political Sciences, Department of Economics, Terzioglu Campus, Center, Canakkale, Turkiye)

Abstract

The aim of this study is to examine the relationships among economic growth, energy consumption, financial development, and foreign trade for 30 developing countries by employing the least absolute shrinkage and selection operator (LASSO) and truncating LASSO (KLASSO) graphical Granger causality (GGN) approaches. The results of the KLASSO GGN test show a unidirectional causality relationship to exist from economic growth to the trade balance, while the findings of the LASSO GGN test indicate a bidirectional causality to exist between these two series. The study has also determined a unidirectional causality to exist from financial development and energy consumption to economic growth. Overall, the empirical findings support the growth hypothesis and the demand-following hypothesis. Evidence has also been obtained showing economic growth to be an important factor affecting the change in the foreign trade balance among the examined country group and period (1990-2019).

Suggested Citation

  • Abdullah Gov & Veli Yilanci, 2023. "Graphical Causality Test Approach to the Relationship Between Economic Growth, Energy Consumption, Foreign Trade Balance and Financial Development," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(73-1), pages 203-230, June.
    • Handle: RePEc:ist:journl:v:73:y:2023:i:1:p:203-230
    DOI: 10.26650/ISTJECON2022-1164588
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    More about this item

    Keywords

    Finance; Trade; Truncating LASSO JEL Classification: O13 ; F16 ; C39;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other

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