The relationship between electricity consumption, trade openness and economic growth in India

Abstract

The present study explores the empirical relationship between electricity consumption, trade openness and economic growth in India utilising cointegration tests and Granger causality vector error correction model for the period 1971–2016. The results of ARDL model reveal that the variables are cointegrated. The robustness of the long‐run relationship between variables is confirmed by applying Hatemi‐J cointegration model. The empirical results show that electricity consumption statistically significantly stimulates economic growth in India both in long term and short term. However, the elasticity of economic growth with respect to electricity use is found to be higher in the long term than that of the short term. Furthermore, we find the existence of a long‐term Granger causality flowing from electricity use to economic growth. In addition, the electricity consumption is also commanded by economic growth in the short‐run. As a broad policy implication, India needs to focus on the development of a sustainable mode of electricity production for achieving high economic growth in the years to come.

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