Article

Energy Consumption and Economic Growth: A Case Study of Three SAARC Countries

European Journal of Social Sciences 01/2010; 16(2):206-213. DOI: 10.2139/ssrn.2124639

ABSTRACT Energy is a crucial component to economic growth and plays a vital role in economic
development. This study inquires the causal relationships between energy consumption
(EC) and the economic growth (EG) within a multivariate framework that includes capital
stock and labor input for the panel of three SAARC countries by using modern panel unit
root technique, residual based panel cointegration and panel based error correction models
.The empirical results fully support a cointegration relationship between EC and EG in the
long run. But from the causal point of view there is long run unidirectional causality
running from EC to EG and no causality was found in the short run.

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    ABSTRACT: This paper empirically examines the dynamic causal relationships between electricity consumption and economic growth for five different panels (namely high income, upper middle income, lower middle income, low income based on World Bank income classification and global) using time series data from 1960 to 2008. Three panel unit root tests results support that both the variables are integrated of order 1 for all panels except low income panel. Only the variable economic growth is integrated of order 1 for low income panel. The Kao and Johansen Fisher panel conintegration tests results support that both the variables are cointegrated for high income, upper middle income and global panels but for lower middle income and low income panels are not cointegrated. Bidirectional causality between economic growth and electricity consumption both in the short-run and long-run is found for high income, upper middle income and global panels from the Granger causality test results. Unidirectional short-run causality is found from economic growth to electricity consumption for lower middle income panel and no causal relationship is found for low income panel. It is found that the long-run elasticity of economic growth with respect to electricity consumption is higher for high income, upper middle income and for global panels indicates that over times higher electricity consumption gives rise to more economic growth in these panels.
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