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

Abdullah Gov () and Veli Yilanci
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Abdullah Gov: Istanbul Arel University, Faculty of Economics and Administrative Sciences, Department of Management Information Systems, Istanbul, Turkiye

Istanbul Journal of Economics-Istanbul Iktisat Dergisi, 2023, vol. 73, issue 73-1, 203-230

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).

Keywords: Finance; Trade; Truncating LASSO JEL Classification: O13; F16; C39 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ist:journl:v:73:y:2023:i:1:p:203-230

DOI: 10.26650/ISTJECON2022-1164588

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