Energy consumption and aggregate income in Italy: cointegration and causality analysis

The aim of this article is to assess the empirical evidence of the nexus between aggregate income and energy consumption for Italy during the period 1970-2009, using a time-series approach. After a brief introduction, a survey of the economic literature on this issue is shown, before discussing the data and intro-ducing some econometric techniques. Stationarity tests reveal that both series are non-stationary, or I(1). Moreover, we found a cointegration relationship between the two variables. The short-run dynamics of the variables show that the flow of causality runs from energy use to GDP, and there is a long-run bi-directional causal relationship (or feedback effect) between the two series. Consequently, we conclude that energy is a limiting factor to GDP growth in Italy.