Investigating the Relationship between Energy Consumption and Economic Growth Using Toda-Yamamoto Causality Test: The Case of Kazakhstan and Azerbaijan

Abstract

This study examines the relationship between energy consumption and economic growth in Kazakhstan and Azerbaijan using the Toda-Yamamoto causality test. Following their independence, both countries implemented significant structural reforms to transition to a market economy, recognizing the efficient use of energy resources as a strategic component for economic growth. Kazakhstan benefited from its abundant oil and natural gas reserves, resulting in an increased economic growth rate. In contrast, Azerbaijan fostered its economic development through a growth model centered on energy exports. The research analyzes the impact of oil and renewable energy consumption on economic growth through various models. The findings indicate a significant causal relationship between energy consumption and economic growth in Kazakhstan, while this relationship is not statistically significant in Azerbaijan. Consequently, the study concludes that energy consumption is a crucial factor for economic growth in Kazakhstan. Furthermore, the research explores how structural differences between energy consumption and economic growth influence the time needed to reach equilibrium. Results show that Kazakhstan achieves equilibrium in a shorter timeframe compared to Azerbaijan. This study aims to enhance the understanding of growth dynamics, particularly in energy-rich countries, by highlighting the effects of energy consumption on economic growth and the implications of different energy policies on this relationship.