ayLiterature Review
the relationship among energy consumption and financial growth has been theoretically investigated through foremost one of a kind strategies. inside the neoclassical increase fashions, strength is virtually considered as an intermediate input of production (Tsani, 2010). consistent with Bartleet and Gounder (2010), proponents of this view suppose that there are a few mechanisms by using which monetary power to use current electricity assets efficiently, and to generate renewable strength assets that aren't subject to binding deliver constraints (Solow, 1974, 1997; stiglitz, 1997). hence, energy is merely one of the non- critical inputs in manufacturing technique. In other phrases, the advocates of this theory assist the ‘neutrality hypothesis’and ‘conservation speculation’. these hypotheses imply that power deliver regulations won't have any dangerous impact on monetary increase. for this reason, the government can simultaneously adopt the power conservation and economics increase policies (Bartleet and Gounder, 2010).
then again, the ecological financial principle states that energy consumption is a proscribing element to financial increase, especially in modern economics. Ecological economists choose that technological development and other physical inputs could not probably alternative the crucial position of electricity in production method (stern, 1993, 2000). They even recall electricity as strength as primary source of value due to the fact other elements of productionsuch as labour and capital cannot perform with out (Belloumi, 2009). The promoters of this angle protect the so-called ‘growth speculation’, and therefore, endorse that any shock to strength supply will in the end have a negative impact on economic increase. As a end result they may be in opposition to strength conservation rules.
The excessive volatility of power fees and accelerated greenhouse gasoline emission has recently attracted attention from teachers and policy-makers in phrases of designing the power conservation coverage. This form of policy can, but, no longer arbitrarily enacted with out thinking about the casual dating between strength consumption and monetary growth. In positive context, policy-makers should understand whether or not financial increase boosts electricity consumption or whether or not electricity consumption causes financial increase. And this trouble had now not been reached to consensus amongst energy economists.
The informal relationship among energy consumption and economic increase has been considerably investigated since the seminar paper of Kraft and Kraft in 1978. distinctive research have finished in distinct international locations, time durations and proxy variables the use of specific econometric methodologies (Ozturk, 2010). however evidences from empirical researches are nonetheless blended and debatable in phrases of course of causality and the intensity of impact on strength policy. know-how the linkages between these two variables is extraordinarily giant because power policy implications on the whole established up on what type of causal dating exist. Bartleet and Gounder (2010) country that it’s more essential to know whether energy consumption causes financial increase than case in which either economic increase promotes electricity consumption or no causal courting exists among them. The underlying reason of justification is that it is truly hard for policy-makers to enact electricity dating; any structural rules that aim at lowering strength consumption would possibly possibly gradual economic increase (Tsani, 2010)
Theoretically, the perfect power coverage desire depends at the real path of the causal dating among energy consumption and economic growth. Ozturk (2010) and Ozturk & Acaravci (2010) sum up 4 feasible hypotheses about power- boom nexus. firstly, no causalitybetween those variables is called ‘neutrality hypotheses. In different words, power assumed to be neutral to growth. If this is not a case, conservative or expansive policies on power consumption may want to adversely affect financial growth. Supporters of this view emphasize the position of substitution and technological progress. in step with Belloumi (2009), the principle motive for the neutral effect of electricity is that the price of electricity is negligible, so it is not probable to have a substantial effect on economic boom. It has additionally been argued that the viable impact of electricity intake on growth will rely upon the shape of the financial system and the level of monetary boom of the u . s . involved. because the economic system grows, its production shape is possibly to shift toward carrier sectors, which are not lots dependent on electricity (Solow, 1974; and cheng, 1995).secondly, uni-directional causality from economic increase to strength consumption supports the’ conservation speculation’. this means that a country would possibly put in force the energy conservation coverage while not having any adverse effect on economic growth. Thirdly, uni-directional causality from energy intake to financial growth is typically taken into consideration as ‘energy-led increase hypotheses’. within this example, policy makers should pay special attention on restriction of energy use due to the fact this movement might also, to which enlarge, hinder financial boom. Proponents of this speculation agree with that electricity is crucial enter of production and plays a supplement of primary factors of land, labour and capital. If this is a case, power is stated to be a proscribing aspect of monetary growth (stern, 1993; and Cleveland et al., 2000). in the end, bidirectional causality between energy intake and monetary increase is known as ‘comments hypotheses. This provides an insight that energy consumption and monetary increase are at the same time determined and affected collectively.
via using the cointegration and error-correction versions of granger causality check (ECM), cheng (1995) realized the presence of uni-directional causality running from economic growth to power intake in India. similarly, masih and masih (1996, 1997) located the life of cointegration between power and GDP in India, Pakistan and Indonesia, however non-cointegration in Malaysia, Singapore and the Philippines. With the same statistics set these authors applied the vector mistakes correction model (VECM), and recognized a uni-directional causality running from economic boom to energy consumption in Indonesia, and bi-directional causality in Pakistan. This look at also made use of the same old granger causality check for the non-cointegrated international locations (which includes Malaysia, Singapore and Philippines), but did not locate any granger causality.
however, in India no longer a lot attention has been committed to analyze the causal courting between economic growth and electricity consumption. In a few earlier research pachuri (1997) and Tyner (1978) the use of regression technique has observed a sturdy relation among electricity consumption and monetary increase in India. Cheng (1999) in his quest for causality has established a unidirectional causal relation from economic increase to strength intake. In comparison, Asafu-Adjaye (2000) has envisioned unidirectional granger causality from electricity intake to income. The finding of Asafu-Adjaye (2000) does now not help the finding of Cheng (1999).
Cheng (1999) has applied Johansen-Hsiao’s version of the granger causality approach on the Indian data for the term 1952-1995. This examine finds that power consumption, monetary boom, capital and labour are cointegrated and the route of causality runs from financial increase to energy intake both in short-run and inside the lengthy-run. No causal relation is discovered from power consumption to financial growth. The modeling approach followed in Asafu-Adjaye (2000) is based on the Engel Granger (1987) methodology. He used 3 variables particularly industrial electricity use, actual earnings and power fees proxied through the consumer rate index for the duration 1973-1995 and located unidirectional Granger causality strolling from electricity intake to economic boom in short-run and inside the long –run. This discrepancy in effects between Cheng (1999) and Asafu-Adjaye (2000) can be due both to the choice of the sample duration or to the measures of the variables or to the selection of the technique or to each.
Now, primarily based on our let us indicate the results of causality among strength intake and economic growth in India the usage of a pattern of annual statistics masking the period 1950-1996. If a linear mixture of the non-stationary variable is non-desk bound, then the same old Granger causality take a look at have to be adopted. If linear combination of the non-stationary is stationary, then errors-correction version need to be adopted. We adopt the same old Granger’s causality check (1969) while GDP is dealt with as a based variable and then the mistake-correction model whilst electricity is taken into consideration as dependent variables. Our blended results of the same old Granger causality testand the Engle-Granger blunders correction approach imply bi-directional causal relation between electricity intake and economic increase. The Johensen multivariate approach (1991) at lag length 3 well-knownshows that the long-run causality exists from economic increase to energy consumption and brief-run causality runs from strength consumption to monetary increase. that is, a bi-directional causality exists among energy intake and monetary increase.
some of research inside the final two many years had been performed to analyze the connection between strength and economic boom. although financial theories do no longer explicitly state a courting between those variables, typical findings are that there exists a dating between electricity consumption and economic growth as considered by way of altinay and karagol (2005)
The macro level literature studying the link among strength and financial development up to now stays restricted as most important move economic literature on boom and improvement to date remains of energy (eatache 2010) .There are, but, a number of studies from the field of strength economics that look at causal relationship between strength consumption and economic increase. A 2d frame of literature makes a speciality of investigating the effect of energy infrastructure investments on variety of development consequences
effect of boom the literature on power and increase can be break up in to (a) the electricity financial literature studying the casual relationship between electricity consumption and financial growth (b) the literature on electricity infrastructure as a variable of interest. studies within the first category, which examine the relationship between power consumption and GDP increase, producing conflicting effects in terms the life and route of causality among variables. This conclusion is drawn through ozturk (2010) who has undertaken an extensive evaluation of this frame of literature of extra than a hundred studies from a huge range of nations, together with both u . s . a . particular and multi country evaluation. masking the period of 1978-2009 and making use of a selection of methodological procedures. With concerning to method .ozturk suggest in keeping with karanfil (2009) that researches have to use extra appropriate econometric techniques in the within the future, as the approach most customarily applied to date are of limited price with regard to the issue in question. for example, in his study of the nexus between power deliver, employment and actual GDP in India, gosh (2009) makes a case of energy supply being a greater meaningful than energy demand in country with high levels of non-technical transmission and distribution losses as the usage of reliable information may additionally result in systematic underestimation of energy intake. subsequent to locating when it comes to employment outcomes of strength intake, the author establishes brief-run causality going for walks from growth to strength supply however finds no causality strolling from power supply to real GDP.
the second one category of studies that have a look at the strength boom nexus, i.e. those that attempt to quantify the contribution of various sorts of infrastructure to earnings and boom, discover mostly positive outcomes of electricity on financial increase. In latest survey of the literature of infrastructure and increase in Africa, foster and briceno-garmendia (2010), conclude that there are robust indicators of a superb impact of infrastructure on boom. several of the reviewed research encompass power in their estimation and display a useful growth impact of strength (veredas 2005).
only some research document highly small impact of strength as compared to different infrastructure investments or fail to find large impact on energy on increase (straub 2008). despite the evidence pointing in the direction of high-quality outcomes of electricity infrastructure, some authors propose to interpret such effects with caution.
studies on the connection among energy intake and financial boom can be lower back to Kraft and Kraft (1978) with the utility of a popular granger causality test. They used usa statistics for the length 1947-1974 and discovered that a unidirectional longer term relationship walking from GDP to strength consumption.
some research inclusive of gurgul and lach (2011), bildirici and kayici (2012), Hu and Lin (2013) and Nazlioglu et al. (2014) discovered that there has been bidirectional causality between electricity consumption and financial boom a few studies consisting of Shiu and Lam (2004), Altinay and Karagol (2005) and Atif and Siddiqi (2010) have observed that there has been unidirectional causality from strength consumption to monetary growth, whilst some research which include Ozun and Cifter (2007), Ciarreta and Zarraga (2007), Hay and Riaz (2008), Adom (2011) and Akinwale et al. (2013) have observed there was unidirectional causality from economic growth to energy intake. pretty few research consisting of Yu and Hwang (1984), Cirreta and Zarraga (2007) and Aktas and Yilmaz (2008) have reached there had been no causality between electricity intake and monetary increase.
Study
Country/country group (period)
Method
Findings
Kraft and Kraft (1978)
USA (1947-1974)
Sims causality test They found that there was unidirectional causality from GNP to gross energy input.
Yu and Hwang (1984)
USA(1947-1979)
Sims causality analysis They found that there was no causality between GNP and electricity consumption.
Yu and Choi (1985)
5 countries (1950-1976)
Sims and Granger causality tests They found unidirectional causality from energy consumption to GNP in the Philippines and reverse causality from GNP to energy in south Korea
Table 1 literature review on relationship between economic growth and electricity consumption
Study
Country/country group (period)
Method
Findings
Ferguson (2000)
110 countries (1971-1995and 1960-1995)
Correlation analysis They found that rich countries had a stronger correlation between electricity consumption and economic growth than poor countries
Shiu and Lam (2004)
China (1971-2000)
Johansen cointegration and Granger causality tests They found that there was unidirectional causality from electricity consumption to economic growth.
Altinay and Karagol (2005)
Turkey (1950-2000)
Dolado-Lutkepohl and Granger causality test They found that there was unidirectional causality from electricity consumption to economic growth.
Study
Country/country group (period)
Method
Findings
Ozun and Cifter (2007)
Turkey (1968-2002)
Wavelet analysis They found that was unidirectional causality from GNP to energy consumption in the long term.
Ciarreta and Zarraga (2007)
Spain (1971-2005)
Linear and non-linear causality They found that there was a unidirectional linear causality from economic growth to electricity consumption but there was no unidirectional non-linear causality.
Karagol (2007)
Turkey (1974-2004)
ARDL bound test They found that there was positive relationship between economic growth and electricity consumption in the long run but there was negative relationship in the short run.
Study
Country/country group (period)
Method
Findings
Hey and Riaz (2009)
Pakistan (1971-2007)
ARDL bound testing approach and Granger causality They found there was a unidirectional causality from economic growth to energy consumption in the long run.
Atif and Siddiqi (2010)
Pakistan (1971-2007)
Granger causality test and modified WALD test They found there was unidirectional causality from electricity consumption to economic growth.
Adom (2011)
Ghana (1971-2008)
Toda and Yamamoto Granger causality test He found that there was unidirectional causality from economic growth to electricity consumption.
Study
Country/country group (period)
Method
Findings
Gurgul and Lach (2011)
Poland (2000-2009)
Linear and nonlinear causality tests They found that there was bi-directional causality between GDP and electricity consumption.
Bildirici and Kayikci (2012)
9 European transition countries
Auto regression distribution lags analysis and granger causality. They found there was bidirectional causality between electricity consumption and economic growth in Hungary and Poland but unidirectional causality in Albania.
Yaprakh ve yurttancikmaz (2012)
Turkey (1970-2010)
Johansen co-integration and Granger causality test. They found that there was bi-directional causality between economic growth and electricity consumption.
Study
Country/country group (period)
Method
Findings
Hu and Lin (2013)
Hainan island (1988-2010)
Co-integration and Granger causality tests They found that there was bi-directional causality between economic growth and electricity consumption.
Ogudipe and Apata (2013)
Nigeria (1980-2008)
Johansen and Juselius co-integration test and Granger causality test They found that there was bi-directional causality between economic growth and electricity consumption.
Akinwale (2013)
Nigeria (1970-2005)
Vector Auto Regressive (VAR) and Error Correction Model. They found that there was unidirectional causality from economic growth to electricity consumption.
Study
Country/country group (period)
Method
Findings
Aktas and Yilmaz (2008)
Turkey (1970-2004)
Granger causality They found there was unidirectional causality from economic growth to electricity consumption in the long run.
Nazioglu (2014)
Turkey (1967-2007)
Bound testing co-integration linear and non-linear Granger causality tests. They found there was bi-directional between economic growth and electricity consumption with linear granger causality. But there is no non-linear granger causality.
Aslan (2014)
Turkey (1968-2008)
ARDL bound test and Granger causality test. He found there was positive impact and bi-directional causality between economic growth and electricity consumption.
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