Could Sri Lanka afford sustainable electricity consumption practices without harming her economic growth?

Shanthini, Rajaratnam (2010): Could Sri Lanka afford sustainable electricity consumption practices without harming her economic growth?

Abstract

The existence and direction of Granger causality between electricity consumption and economic growth, proxied by gross domestic product (GDP), has been investigated in this study using annual data covering the period 1971 to 2007. The results of the augmented Dickey-Fuller, GLS-detrended Dickey-Fuller and Phillips-Perron tests show that the natural logarithms of both the times series are individually I(1). The autoregressive distributed lag bounds testing approach to cointegration used in this study reveals that the two times series are cointegrated. The estimated long-run equilibrium relationship shows that 1% growth in GDP induces 1.45% growth in electricity consumption, and any deviation from the long-run equilibrium following a short-run disturbance is corrected within 17 months. Granger causality test results reveal uni-directional causality running from economic growth to electricity consumption without any feedback effect. The outcome of such results is beneficial to Sri Lanka’s economic growth since it is not dependent on electricity consumption, and thereby production. It is therefore possible to initiate energy policies towards minimizing wasteful electricity production and consumption practices, without compromising Sri Lanka’s GDP growth, to take her on an electricity-wise sustainable economic development path.

• Item Type: MPRA Paper
• Language: English
• Keywords: ARDL; cointegration; Granger causality; gross domestic product; sustainable electricity consumption; Sri Lanka
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling

References

Amarawickrama HA, Hunt LC. Electricity demand for Sri Lanka: a time-series analysis. Energy, 2008;33:724-39.

CEB. Long-term Generation Expansion Plan 1999-2013. CEB, Colombo, Sri Lanka, 1999.

CEB. Long-term Generation Expansion Plan 2009 -2022. CEB, Colombo, Sri Lanka, 2008.

Dickey DA, Fuller WA. Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 1979;74:427-31.

ECA, RMA, ERM. Sri Lanka: Environmental Issues in the Power Sector (Draft Report). Economic Consulting Associates Limited, 41 Lonsdale Road, London NW6 6RA, UK, 2009.

Elliott G, Rothenberg TJ, Stock JH. Efficient tests for an autoregressive unit root. Econometrica, 1996;64:813-36.

Engle RF, Granger CWJ. Co-integration and error correction: representation, estimation and testing. Econometrica, 1987;55:251-76.

Ferguson R, Wilkinson W, Hill R. Electricity use and economic development. Energy Policy, 2000;28:923-34.

Ghosh S. Electricity consumption and economic growth in India. Energy Policy, 2002;30: 125-9.

Granger CWJ, Newbold P. Spurious regressions in econometrics. Journal of Econometrics, 1974;2:111–20.

Morimoto R, Hope C. The impact of electricity supply on economic growth in Sri Lanka. Energy Economics, 2004;26:77-85.

Narayan PK. The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 2005;37:1979-90.

Narayan PK, Singh B. The electricity consumption and GDP nexus for the Fiji islands. Energy Economics, 2007;29:1141-50.

Pesaran MH, Shin Y. An autoregressive distributed lag modeling approach to cointegration analysis. In: Strom S, editor. Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press, 1999.

Pesaran MH, Shin Y, Smith R. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 2001;16:289–326.

Phillips PCB, Perron P. ‘Testing for a unit root in time series regression. Biometrika, 1988;75:335-46.

World Bank Group. World Development Indicators & Global Development Finance. Obtained through the Internet: http://databank.worldbank.org [accessed May 08, 2010], 2010.

Yang H-Y. A note on the causal relationship between energy and GDP in Taiwan. Energy Economics, 2000;22:309-17.