Electricity consumption and economic growth: New evidence from twelve countries

Abstract

This paper examines the short- and long-run relationship between economic growth and electricity consumption as an additional factor of production where state and macroeconomic stability variables are included in a multivariate growth model. The study uses the Autoregressive Distributed Lag (ARDL) approach to cointegration to investigate this relationship in twelve countries during the period 1970-2014, selected from three continents, namely: Europe (Luxemborg, Norway, Denmark, Belgium), Asia (Singapore, Japan, Indonesia, India), and Africa (South Africa, Algeria, Egypt, Kenya), representing developed and developing countries. The study results reveal that electricity consumption is positively and significantly associated with economic growth in Luxemborg, Norway, Denmark, Belgium, Japan, Indonesia, India, South Africa, Algeria, and Egypt; and negatively associated with economic growth in Kenya in the long run. In the short run, the results reveal a positive and significant association between electricity consumption and economic growth in Luxemborg, Denmark, Singapore, Japan, Indonesia, India, South Africa, and Algeria; and negatively associated in Egypt. The study therefore concludes that electricity consumption is an important factor of production in the study countries. Therefore, policy makers in economies where energy use leads to economic growth should focus on growth-promoting energy policies that are supported by macroeconomic stability policies.