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On the role of the trend and cyclical components in electricity consumption and India's economic growth: a cointegration and cofeature approach

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  • Wasim Ahmad
  • Md Zulquar Nain
  • Bandi Kamaiah

Abstract

In this paper, the relationship between electricity consumption (LEC) and economic growth (LGDP) using Autoregressive Distributed Lag (ARDL) model and Granger causality within error correction framework in India over the period 1970–1971 to 2009–2010 are analysed. The results of these tests exhibit the existence of long-run equilibrium relationship and bilateral causality in case of India. Then, Hodrick–Prescott filter is used to decompose the data into trend and cyclical (fluctuation) components of electricity consumption and economic growth. The results of decomposed series revealed that both series are cointegrated with the strong evidence of bidirectional causality, implying that trend and cyclical components are strongly correlated with business cycles in India. From these findings, we conclude that the feedback hypothesis is applicable in case of India. Therefore, government should undertake necessary policy measures to augment the investment in power sector from existing level and more importantly the emphasis should also be given on the efficient use of electricity.

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  • Wasim Ahmad & Md Zulquar Nain & Bandi Kamaiah, 2014. "On the role of the trend and cyclical components in electricity consumption and India's economic growth: a cointegration and cofeature approach," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(1), pages 107-126, March.
    • Handle: RePEc:bla:opecrv:v:38:y:2014:i:1:p:107-126
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    File URL: http://hdl.handle.net/10.1111/opec.12028
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    Cited by:

    1. Md zulquar Nain & Sai sailaja Bharatam & Bandi Kamaiah, 2017. "Electricity consumption and NSDP nexus in Indian states: a panel analysis with structural breaks," Economics Bulletin, AccessEcon, vol. 37(3), pages 1581-1601.
    2. Tiwari, Aviral Kumar & Eapen, Leena Mary & Nair, Sthanu R, 2021. "Electricity consumption and economic growth at the state and sectoral level in India: Evidence using heterogeneous panel data methods," Energy Economics, Elsevier, vol. 94(C).

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