The Causality between Electricity Consumption and Gross Domestic Product: Evidence from 144 Countries

Abstract

This study investigates the causal relationship between electricity consumption and gross domestic product (GDP) in 144 countries during the period 1980-2006. Thus, the countries have been divided into four different groups according to their GDP. These groups are defined as high income (38 countries), upper middle income (25 countries), lower middle income (39 countries) and low income (42 countries). This study applies the most recently developed panel causality tests, including the Hurlin and Venet test (2001) and the Granger causality test. The results show strong evidence for bidirectional causality in high income group, low income group and full sample, but no evidence for causal relationships in upper middle income countries. The findings show that unidirectional causality links electricity consumption to GDP in lower middle income countries. The results of all tests are also found same. Generally, the findings show that causal relationships are homogenous across the investigated countries, but only the heterogeneous causality is defined in twelve countries (Bahamas, Bahrain, Greece, Ireland, Kuwait, Malta, Netherlands, Puerto Rico, Saudi Arabia, Singapore, Switzerland and United Arab Emirates in high income group) of all countries.