Elsevier

Energy Policy

Volume 30, Issue 2, January 2002, Pages 125-129
Energy Policy

Electricity consumption and economic growth in India

https://doi.org/10.1016/S0301-4215(01)00078-7Get rights and content

Abstract

This paper tries to examine the Granger causality between electricity consumption per capita and Gross Domestic Product (GDP) per capita for India using annual data covering the period 1950–51 to 1996–97. Phillips–Perron tests reveal that both the series, after logarithmic transformation, are non-stationary and individually integrated of order one. This study finds the absence of long-run equilibrium relationship among the variables but there exists unidirectional Granger causality running from economic growth to electricity consumption without any feedback effect. So, electricity conservation policies can be initiated without deteriorating economic side effects.

Introduction

Energy is the basic building block of economic development. Electricity is the most flexible form of energy that constitutes one of the vital infra-structural inputs in socio-economic development.

Causal relationship between energy consumption and economic growth has been the prime focus of economists and policy analysts since 1970's (Kraft and Kraft, 1978; Beenstock and Willcocks, 1981; Samouilidis and Mitropopulous, 1984; Yu and Choi, 1985; Erol and Yu, 1987; Cheng and Lai, 1997; Yang, 2000, Stern, 2000, Adjaye, 2000).

The purpose of this paper is to investigate empirically the existence and direction of causal relationship between electricity consumption and economic growth in India. Such knowledge can play a crucial role from the policy formulation point of view. If, for example, there exists unidirectional Granger causality running from income to electricity consumption, it may be implied that electricity conservation policies may be implemented without deteriorating economic growth. On the other hand, if unidirectional causality runs from electricity consumption to income, reducing electricity consumption could lead to a fall in income.

The paper is organized in the following manner: a brief and intuitive account of econometric methodology and description of the data is provided in Section 2 before discussing the empirical results in Section 3. Conclusions of the study are produced in Section 4.

Section snippets

Econometric methodology and data description

Engle and Granger (1987) showed that if the two series X and Y (say) are individually I(1) (i.e. integrated of order one) and cointegrated then there would be a causal relationship at least in one direction. The presence of cointegration among the variables rules out the possibility of “spurious” correlation. However, although cointegration indicates the presence or absence of Granger causality, it does not indicate in which direction causality runs between the variables. This direction of

Empirical results

In the first stage the order of integration of the data is investigated. Table 1 presents the results of unit root tests on the natural logarithms of the levels and the first differences of the two time series viz. per capita GDP and per capita electricity consumption. On the basis of the Phillips–Perron statistics, the null hypothesis of a unit root cannot be rejected. Stationarity is obtained by running the similar test on the first difference of the variables. This indicates that both the

Conclusion

India is a populous country accounting nearly one-sixth of the world's population. The Indian economy has grown by about 4.5% per annum on a long-term basis in the second half of the twentieth century whereas the installed power generation capacity and generation has increased at the rate of 9% and 10% per annum compounded, respectively. The demand for electricity has been growing at a compound annual rate of growth (CARG) of nearly 8% (Das et al., 1999).

This paper has investigated the

Acknowledgments

I am grateful to my wife Kakali for her help and encourgement.

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