THE CAUSAL RELATIONSHIP BETWEEN ENERGY CONSUMPTION AND ECONOMIC GROWTH CASE OF JORDAN

The study examined the causality and relationship between energy consumption and economic growth, the paper adopts Granger Causality test and multiple Regression during the period (19952013), the results shows a unidirectional causation running from economic growth to energy consumption without a feedback effect, This attributed to low level of energy consumption, which too small to cause economic growth, and it implies that policies for reducing Energy consumption may be adopted and implemented with little or no adverse effects on economic growth and the existence of a long run relationship between the two variables. Key Word: Debt, economic growth, Granger Causality, co-integration. 1. Introduction The oil crisis of the 1970’s brings the importance of energy as an indispensable production Input In theory, the structure and sect oral shares of economic activity in a country as well as the stage of economic development largely determines the rate of energy consumption of that country The expectation therefore is that energy consumption will be relatively low in largely agrarian and service economies but high in mainly industrialized economies. The energy sector is usually a small but fundamental part of most economies given its impact on the smooth workings of the economy This is particularly true for most energy resource rich developing countries where the development and export of energy resources constitute a major stimulus to economic and social development. The theoretical and empirical relationship between energy consumption and economic growth has initiated a great deal of interest in the academic circle. While the causality connection between energy-economy interactions is the most researched issue in recent time, the conclusions emanating from these studies are far from being unanimous. The increasing debate on causality test revolves round the different methodology and the inherent implications of the consequential outcomes for policy formulation, These are is to ascertain the nature and direction of causal relationship between energy consumption and economic growth and extend the analysis to a cointegration analysis in other to establish whether, a long run relationship exists between the energy and growth. The purpose of establishing the causal direction is an important phenomenon in making policy recommendation for the government. This will assist the government in formulating future Energy policies such as investing more in the Energy sector when Energy consumption causes economic growth, or engaging in Energy conservation program when economic growth causes Energy consumption. The causality can be unidirectional or bidirectional. However, no causality can also exist between the two variables. Unidirectional causality can run from Energy consumption to economic growth and vice versa. If causality runs from Energy consumption to economic growth, it means that reduction in Energy consumption in such a country could lead to fall in the economic growth while if it runs from economic growth to Energy consumption, it implies that policies for reducing Energy consumption may be adopted