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 the panel of south Asian countries using time series data from 1971 to 2007. Another purpose of this paper is to find the short-run and long-run elasticities of economic growth with respect to electricity consumption for this panel. The four panel unit root tests results support that both the variables are integrated of order 1. The Johansen Fisher panel conintegration test results support that there is a one cointegration vector. The Granger causality tests results support that existence of unidirectional causality from economic growth to electricity consumption in India, Nepal and Pakistan, and from electricity consumption to economic growth in Bangladesh. No causal relationship is found in Iran and Sri-Lanka. The panel Granger F-test results support that there is no evidence of short-run causal relationship between the variables but long-run unidirectional causal relationship from electricity consumption to economic growth is found for this panel. It is found that the long-run elasticity of economic growth with respect to electricity consumption (0.5451) is higher than short-run elasticity of 0.3813. This means that over times higher electricity consumption in South Asian countries gives rise to more economic growth.


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May 29, 2014