The Linkage between Imported Energy and Trade in Taiwan

This study examines the Granger causality between Taiwan's aggregate and disaggregate energy consumption and trade variables, including total imports (IM), total exports (EX), total energy consumption (ENERGY), oil and petroleum products consumption (OIL), coal and coal products consumption (COAL), natural gas consumption (GAS), export value of the industrial sector (EX_I), export value of heavy-chemical industrial products (EX_HI), and export value of non-heavy-chemical industrial products (EX_NHI) with monthly data during 1998–2009. Via applying Hsiao's version of the Granger causality method, the results find causality running from ENERGY to IM, EX, EX_I, and EX_HI. The impulse-response simulations show that the above relations have positive responses at the initial period. OIL Granger causes all trade variables. The impulse directions to IM and EX_NHI are negative, whereas others are positive. On the other hand, COAL responds to impulses in all trade variables. The impulse-response simulations show that these relations have positive responses at the initial period except for causality running from EX_HI and EX_NHI to COAL. GAS positively responds to impulses in EX, EX_I, and EX_HI at the initial period. The bidirectional Granger causality between pairs of variables (such as GAS and EX_NHI as well as GAS and EX_HI) is found. 1. Introduction The 1973 energy crisis prompted countries all over the world to see the importance of energy to national security as well as economic development. Moreover, greenhouse gases produced by energy consumption have had drastic impacts on global climate change, attracting attention and efforts under the UN Framework Convention on Climate Change. Since domestic energy sources in Taiwan are scarce, Taiwan’s dependence on imported energy was rated up at 99.34% in 2008 [1]. The cost of imported energy accounts for 11.31% of Taiwan’s GDP [2]. Total energy consumption has grown greatly over the past two decades, going from 48.04 million kiloliters of oil equivalent (KLOE) in 1989 to 113.09 million kiloliters in 2009, which is an average annual growth of 4.41% (Table 1) [3]. In the face of a constant rise in energy prices, the heavy cost of imported energy impacts not only household expenditures, but also the country’s overall economic growth [4, 5]. As international energy prices skyrocket, they raise the production costs for energy-consuming industries and hence directly reduce firms’ profit margins and production. Table 1: Total domestic energy consumption quantity and growth rate. Taiwan’s primary imported energy resources