Electricity consumption-growth nexus: Evidence from panel data for transition countries

This paper investigates the long-run relationship and causality issues between electricity consumption and economic growth in 15 Transition countries (Albania, Belarus, Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Russian Federation, Serbia, Slovak Republic and Ukraine) by using the Pedroni panel cointegration method for the 1990-2006 period. Results suggest that the Pedroni panel cointegration tests do not confirm a long-term equilibrium relationship between electricity consumption per capita and real GDP per capita. Moreover, since no cointegration was found, error-correction mechanisms plus causality tests cannot be run for further steps in the long-term to investigate the causality between electricity consumption and economic growth. Overall, it can be said that the electricity consumption related policies have no effect or relation on the level of real output in the long run for these countries. As a conclusion, the literature has conflicting results and there is no consensus either on the existence or the direction of causality between electricity consumption and economic growth. Thus, the findings of this study have important policy implications and it shows that this issue still deserves further attention in future research.