Revisiting the electricity consumption-led growth hypothesis: is the rule defied in France?

Abstract

AbstractRecent economics literature emphasises the inextricable link between economic prosperity and efficient energy supply and consumption, arguing vehemently that much of today’s prosperity is predicated on secure and reliable energy use and that modern industry would grind to a halt without the necessary energy infrastructure. France is an example of an advanced country with enormous energy infrastructure. The country’s economic growth has been rather sluggish in recent years, despite its robust and efficient energy production and consumption. The current study analyses empirically whether France’s current sustainable electricity use defies the theoretical and empirical literature. To achieve this objective, the standard tools of growth empirics were used over the period 1961–2015. The Zivot–Andrews trended and de-trended structural break tests, as well as Autoregressive Distributed lag (ARDL) bounds testing were employed to analyse the data. The findings of this study demonstrated that France's economic growth is stimulated by electricity usage, financial development, capital, import, and export. The study sheds light on the feedback impact between economic growth and power usage as well as capital and economic growth. With these findings, we argue that it is not electricity that has ceased to serve a functional purpose in France, rather there is a need for entrepreneurial innovative capacity to create factors that require an infinite horizon for the continued use of electricity, which seems to be impeding the country's economic growth potential, among other things.