ABSTRACT:
This research paper argues that only the value added and production base component of energy consumed is the positive contributing factor in GDP, not the total consumption. Total consumption which also includes a component of household consumption, transportation and industrial use.
INTRODUCTION:
Energy in a vital factor in industrial production and the lifeblood of any nation’s economic development. Shortage of electric power has not only compromised a social comfort level but also seriously hampered the economic growth of a nation.
The use of primary energy and electric power differ in developing countries than industrialized countries. Developing nations has proved a higher appetite for electric power consumption. In last one and a half decade, the consumption rate has been increasing at the rate of 8% annually, with overall demand increase of 200%[1].
The relationship between power consumption and national economic development has a great significance. Power consumption statistics are vital indicators for gauging the economic growth[2]. These figures play a vital role in promoting sustainable economic development, and in formulating medium and long-term policy, and planning to achieve national objectives[3]. Even though, not all the power utilization; the total consumption, contribute in economic development, but still energy consumption is a vital indicator.
Since early 19970′s by using total energy consumption model, which include commercial and residential use of energy, there is a positive correlation between energy consumption and economic growth. These studies evaluated the economic growth rate in industrialized countries, including USA, UK, Canada, France, and Japan. Empirical literature revealed that most of the studies opt to evaluate the relation on the total consumption model[4].
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Lately, the prevailing methodologies, Standard Granger-Causality (SGC) and Error Correction Model (ECM), models have been applied to evaluate the relationship between energy consumption and GDP[5].
This paper is incline to the latter approach that relationship between energy consumption and economic growth can only be evaluated if production base analysis or value added component should be given high weighted value in evaluating, deducting or reducing the residential consumption from total consumption energy equation.
EMC technique has been applied to study the relationship between energy and economic growth in India, Indonesia, Thailand and Philippine. It has been concluded that energy consumption, income and price are mutually causal for Thailand but have bi-directional impact on Philippine.
On the other hand, Alice-Shiu and Pun-Lee Lan reached to the conclusion by using SGC Mode that causal relation indicates uni-directional impact while the ECM inclined in bi-direction for China.[6]
The magnitude of the impact can be seen by using double logarithmic regression model, base on thermal power generating capacity. It stated that 1% increase in power generation capacity could cause it to increase 2.03% increase in GDP[7].
in a singular sturdy for China by using Regression Analysis Model, indicated that 1% growth in energy consumption caused 1% increase in GDP[8]. Li Boqiang, concluded in another study that a bi-directional relationship exists by using both models SGC and ECM, and by including the attributes like human capital and technical know-how[9].
CONCLUSION:
The more scientific evaluation of economic impact by electricity use can be determine only by value added or production base analysis.
Co-integration between energy consumption and GDP — more electric consumption increase the GDP and short of electricity constrained the GDP.
In a long-term analysis, a positive correlation is evident in energy consumption and GDP growth.
[1] Hans Blix, “The world’s energy needs and the nuclear power option”, Special Report, IAEA Bulletin, 1990.
[2] Sari U. Soytas, Energy consumption and GDP: causality relationship in G-7 countries and emerging market, Energy Economics, 2003, (25), p 33-37.
[3] A.M.M. Masih, “On the temporal causal relationship between energy consumption, real income and price: Some new evidence from Asian-energy dependent NICs Based on multivariate co-integration/vector error-correction approach. Journal of Policy Modeling, 1997, (19), p 417-440.
[4] Charles B. L. Jumbe, “Co-integration and causality between electricity consumption and GDP — empirical evidence from Malawi”, Energy Economics, 2004, p 161-68.
[5] Asafu- Adjaye J.,” The relationship between electricity consumption, price and economic growth, time series evidence from Asian Development countries”, Energy Economics, 2002, (22), p 615-625.
[6] Alice-Shiu, Pun-Lee Lan, “Electricity Consumption and Economic Growth in China”, Energy Policy, 2004, (32), p 47-54.
[7] Li Ji-Ying, , “analysis on mutual action relationship between power industry and national economy”, The Economist, 2004, 9(4), p 66-67.
[8] He Yong-Gin “inhalants relationship between power industry and amendment of national economy uncorked stack of sticks and to see in 2004, (10), p 97.
[9] Lin Boqiang “Power consumption and economic development of China: study based on production function”, Management World, 2003, (4), p 18-20.
Tags: consumption model, consumption rate, consumption statistics, economic growth rate, electric power consumption, household consumption, national economic development, positive correlation, sustainable economic development, vital indicators