Electricity Consumption and Economic Growth: Evidence from South Asian Countries

Abstract

The purpose of this study is to shed light on the nexus between electricity supply and economic growth in South Asian countries during 1990–2018. The study employs Pedroni’s panel cointegration test as well as Dumitrescu and Hurlin’s (DH) causality test for panel data. The empirical results confirm a long-term relationship between electricity supply and economic growth. We fail to reject the non-causal relationship between electricity supply and economic growth for the panel, thereby affirming the neutrality hypothesis. Single country causality analysis reveals the growth hypothesis in the case of Pakistan. These results have a number of policy implications. For example, governments can introduce measures to improve energy efficiency in Bangladesh, India and Sri Lanka without fear of harming economic growth. The results for Pakistan may also imply that fostering green energy generation would lead to a positive effect on economic growth via improved electricity production. The government may use various policy tools to stimulate adoption of renewable energy, such as fiscal incentives, low interest loans, or grants for rural populations to speed up the green energy transformation.