Economic Growth Hypothesis

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The pioneer study investigating the relationship between energy consumption and economic growth is by Kraft and Kraft (1978). Subsequently, scholars specifically concentrated on the relationship between electricity consumption and economic growth. Despite the fact that there is no agreement on flow of causality between electricity consumption and economic growth among scholars, the debate on causality between electricity consumption and economic growth can be summarized by four distinct hypotheses.

The growth hypothesis also known as, electricity consumption-led growth, affirms unidirectional causality running from electricity consumption to economic growth. Hence, a decrease in electricity consumption causes a decrease in real GDP. On the
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Ghosh (2002) applied Granger causality to examine causal relationship between electricity consumption and economic growth covering the period from 1950 to 1997 in India and reported the existence of a short-run unidirectional causality running from gross domestic product to electricity consumption.

Ghosh (2009) conducted ARDL bounds testing and error correction model from 1970 to 2006 for India, and found unidirectional short–run and long-run causality running from economic growth to electricity supply in India.

Mozumder & Marathe (2007) utilized Johansen-Juselius cointegration test and vector error correction model to analyse the relationship between electricity consumption and GDP in Bangladesh over the period 1971–1999. The results confirmed short-run unidirectional causality running from real GDP to electricity consumption.

Halicioglu, (2007) employing augmented Granger causality assessed the relationship between electricity consumption and economic growth in Turkey. His empirical evidence indicated that the direction of causality runs from income to electricity
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In the long–run in the Czech Republic, Korea, Australia, UK, Iceland, the Slovak Republic, Portugal and Italy; it was observed that electricity consumption granger causes real GDP. The implication is that policies favouring electricity consumption positively impact real GDP in these countries. However, for the rest of the countries (approximately 73 percent of the OECD countries) their findings suggested that electricity conversation policies should not affect real GDP.

Yoo and Kwak (2010) examines causal links between economic growth and electricity usage in seven South American countries. Authors used panel data of annual frequency from 1975 to 2006 employed the cointegration and the Hsiao′s (1981) Granger causality techniques. Argentina, Brazil, Chile, Colombia, and Ecuador recorded uni-directional causality running from electricity consumption to economic growth. Venezuela supported unidirectional causality running from economic growth to electricity consumption whereas Peru revealed bi-directional causality from electricity consumption to economic
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