The relationship between primary energy consumption and GDP. Elasticity of primary energy consumption in India
ISSN 2222-9167
The economic development particularly and the economic growth of a country significantly depends on the long-term availability of energy from sources that are affordable, accessible and environmentally friendly. The adverse effects on environment caused by the production and consumption of energy have resulted in severe environmental impacts across the globe. India is expected to sustain an adequate energy supply in coming years. The consumption of energy is high in most developed countries. On the other hand, the developing countries need to consume more energy to ensure economic growth. The energy consumption in developing countries is estimated to be only one-tenth of that in the developed countries. The paper examines whether electricity energy consumption drives economic growth or vice versa in the Indian context using the annual data covering the period from 1970 to 2017. KPSS tests reveal that both the series, after logarithmic transformation, are non-stationary at level and stationary at first difference. Applying, two step Engle-Granger technique and Granger causality/ Block exogeneity Wald test, the study suggests that it is the primary energy consumption that fuels economic growth both in short run and long run. It rejects the neo-classical hypothesis and empirically proves that electricity consumption is a limiting factor on economic growth, using dynamic OLS(DOLS) method.
Keywords: Energy consumption | economi cgrowth | Engle-Granger technique and Granger causality | block exogeneity Waldtest | elasticity | India |
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