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Korea's energy policy and economic growth : The effects of the energy price on the macroeconomy

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Frame of Image es both the relationship between energy consumption and economic growth and the effects of energy prices in a small open economy in a two-sector framework. With increasing globalization, each country has become more open to, and integrated with, other countries. As the volume of international trade gradually increases among countries, so does the distinction between the traded and the non-traded sector. The impact of economic shocks varies between the economic sectors because of production technology differences and other structural differences. Different shocks affect the economy in different ways in terms of the real exchange rate or the relative price, and consumers alter their consumption patterns accordingly. As a result, we observe the reallocation of consumption and inputs for the production of goods between sectors. Such an important transmission mechanism can only be modeled if we introduce both traded and non-traded sector. In this report, energy consumption and real GDP are selected for the Granger Causality test. We found that both energy consumption and real GDP granger cause each other. For the long run analysis, we use vector Abstract i error correction model and found that there is a long run relationship between energy consumption and real GDP. To see the effects of energy prices on the macroeconomic variables, we use infinite horizon optimizing model. Household derives utility from both traded and non-traded consumption. Energy is used as an input in the pro


Full Text
Title Korea's energy policy and economic growth
Similar Titles
Sub Title

The effects of the energy price on the macroeconomy
Material Type Report
Author(English)

Park, Kihyun

Publisher

Uiwang : Korea Energy Economics Institute
Date 2011-12
Series Title; No Base Research Paper / 2011-22
Pages 122
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic Conditions
Industry and Technology < Energy
Holding Korea Energy Economics Institute
License

Abstract

Energy is necessary for economic production and economic growth but the mainstream theory of economic growth pays no attention to the role of energy. Toman and Jemelkova(2003) argue that most of the literature on energy and economic development discusses how development affects
energy use rather than vice versa. This study examines both the relationship between energy consumption and economic growth and the effects of energy prices in a small open economy in a two-sector framework. With increasing globalization, each country has become more open to, and integrated with, other countries. As the volume of international trade gradually increases among countries, so does the distinction between the traded and the non-traded sector. The impact of economic shocks varies between the economic sectors because of production technology differences and other structural differences. (The rest omitted)