ElectricityConsumptionandEconomicGrowthinBangladeshCo-IntegrationandCausalityAnalysis

Transcription

1 Global Journal of Managemen and Business Research Volume 12 Issue 11 Version 1.0 July 2012 Type: Double Blind Peer Reviewed Inernaional Research Journal Publisher: Global Journals Inc. (US) Online ISSN: & Prin ISSN: Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis By Mahedi Masuduzzaman Universiy of Greenwich, Unied Kingdom bsrac - This paper ries o invesigae he relaionship beween economic growh, elecriciy consumpion and invesmen for Bangladesh hrough co-inegraion and causaliy analysis over he period 1981 o Using DP and PP uni roo ess i is found ha all he hree variables are inegraed of order 1. The Johansen co-inegraion ess indicae ha all he variables are coinegraed wih one co-inegraing vecor. The Granger F es resuls Confirmed he exisence of unidirecional causaliy running from elecriciy consumpion o economic growh, elecriciy consumpion o invesmen and invesmen o economic growh wihou feedback in he shor run. The source of causaion in he long run is also found o be he error correcion erms from elecriciy consumpion and economic growh o invesmen. The long run elasiciy of economic growh wih respec o elecriciy consumpion and invesmen are higher han heir shor run elasiciy. This implies ha over ime higher elecriciy consumpion and invesmen in Bangladesh give rise o more economic growh. Keywords : Elecriciy consumpion, economic growh, invesmen, shor-run and long-run elasiciy, co-inegraion, granger causaliy. GJMBR-B Classificaion : FOR Code: JEL Code: C32, E21, Q43, O47 ElecriciyConsumpionandEconomicGrowhinBangladeshCo-InegraionandCausaliynalysis Sricly as per he compliance and regulaions of: Mahedi Masuduzzaman. This is a research/review paper, disribued under he erms of he Creaive Commons ribuion-noncommercial 3.0 Unpored License hp://creaivecommons.org/licenses/by-nc/3.0/), permiing all non-commercial use, disribuion, and reproducion in any medium, provided he original work is properly cied.

2 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis Mahedi Masuduzzaman bsrac - This paper ries o invesigae he relaionship beween economic growh, elecriciy consumpion and invesmen for Bangladesh hrough co-inegraion and causaliy analysis over he period 1981 o Using DP and PP uni roo ess i is found ha all he hree variables are inegraed of order 1. The Johansen co-inegraion ess indicae ha all he variables are co-inegraed wih one coexisence of unidirecional causaliy running from elecriciy inegraing vecor. The Granger F es resuls Confirmed he consumpion o economic growh, elecriciy consumpion o invesmen and invesmen o economic growh wihou feedback in he shor run. The source of causaion in he long run is also found o be he error correcion erms from elecriciy consumpion and economic growh o invesmen. The long run elasiciy of economic growh wih respec o elecriciy consumpion and invesmen are higher han heir shor run elasiciy. This implies ha over ime higher elecriciy consumpion and invesmen in Bangladesh give rise o more economic growh. Keywords : Elecriciy consumpion, economic growh, invesmen, shor-run and long-run elasiciy, coinegraion, granger causaliy. I. Inroducion E lecriciy is a flexible form of energy and criical resource for modern life and a vial infrasrucural inpu for economic developmen. In all economies, households and companies have exensive demand for elecriciy. This demand is driven by such imporan facors as indusrializaion, exensive urbanizaion, populaion growh, rising sandard of living and even he modernizaion of he agriculural secor. There is widespread discussion and research over he opic of relaionship beween elecriciy consumpion and income paricularly since early sevenies of he las decades. Obviously, he degree of ineres inensified since he Kraf and Kraf (1978) findings. They found evidence of a uni-direcional causal relaionship running from GNP o energy consumpion in he Unied Saes using daa spanning from 1947 o Elecriciy is a major source of energy in he indusrial and agriculural secors in Bangladesh. These wo secors collecively conribue o 50.3% of Bangladesh s GDP. The conribuion of agriculural and indusry secor o GDP in fiscal year was 19.9% and 30.4% respecively (Bangladesh Bank, 2012). The share of agriculure and indusry secors in elecriciy consumpion is increasing gradually. ccording o he Bangladesh Power Developmen Board (BPDB) saisics abou 45% (1995 o 2010) of oal elecriciy was consume by agriculure and indusrial secors. These saisics indicae ha indusry and agriculure ogeher conribue significanly o GDP and elecriciy consumpion as well. From his we can infer, herefore ha elecriciy consumpion plays an imporan role in economic growh of Bangladesh. I is, herefore imporan o idenify he relaionship beween elecriciy consumpion and naional oupu and also heir direcion of causaliy o ge a beer undersanding of he issues involved and deermine he policy sraegies. Tha is why in his sudy he main purpose is made o examine he causal relaionships beween elecriciy consumpion, economic growh and invesmen for Bangladesh using he ime series daa spanning from 1981 o This paper is divided ino six secions. The secion one of his sudy is he inroducory par. The res of he sudy is organized ino anoher five secions. The second secion of he sudy will presen conexual informaion of he sudy where we discussed regarding curren and fuure siuaion of Bangladesh s power secor. Secion hree is he lieraure review secion, where we presen relevan lieraures ha will give us sound concepion of he fac. The secion four provides an avenue regarding research mehodological approach and he relevan informaion on he ime series daa ses ha are used for his sudy, while secion five is discussed he empirical resuls. Finally, secion six will provide he conclusion ha will poin ou he possible policy recommendaions of he sudy. Global Journal of Managemen and Business Research Volume XII Issue XI Version I July uhor : Senior ssisan Secreary, Macroeconomic Wing, Finance Division, Minisry of Finance, Bangladesh Secrearia, Dhaka-1000, Bangladesh. mahedimasuduzzaman@yahoo.com/ mahedim@finance.gov.bd

3 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis July Global Journal of Managemen and Business Research Volume XII Issue XI Version I II. Conexual Informaion Of The Sudy The elecriciy infrasrucure plays an imporan role in economic growh and employmen generaion for developing counries more han he developed ones (Chen e. al. 2007). In Bangladesh, expansion of economic aciviies is resrained by he underdeveloped elecriciy infrasrucure. The energy secor is poorly managed (Mozumder and Marahe, 2007) and characerized by he limied coverage of supply, inefficiency, poor qualiy of services and huge governmen subsidies (Temple, 2002). The supply of elecriciy is inadequae o mee he growing demand. s a resul frequen elecrical power ouages or loadshading are used o manage he gap beween power generaion and demand of elecriciy in Bangladesh (Buysse e. al. 2012). The producion of elecriciy has increased over he years bu failed o mach he high demand of elecriciy leading o chronic shorage in power supply. Therefore, hisorically Bangladesh is elecriciy defici counry ha has clear impac on economic aciviies. Though per capia elecriciy consumpion increased from Kilowa hour (KWh) in 1995 o KWh in 2011(BPDP, 2011) bu remained one of he leas per capia elecriciy consuming economies in he world (CPD, 2011). presen 50% of he people in Bangladesh have access o elecriciy and he demand of elecriciy is increasing a a rae of 10% every year (FD, 2011). Considering he necessiy of elecriciy and he achievemen of 10 percen Gross Domesic Producs (GDP) growh by 2021, Governmen has underaken immediae, shor, medium and long erm programs for overall balanced developmen and revamps he elecriciy secor. Some of hese developmen programs include i) insallmen of gas based power generaion plans ii) esablishmen of nuclear power plans iii) generaing environmen friendly elecriciy from renewable energy sources iv) massive ransmission and disribuion programs o ensure uninerruped power supply v) energy savings and energy efficiency programs for billing efficiency, opimum use of elecriciy and reducion of sysem loss vi) rehabiliaion and enhancemen of efficiency of old power plans and se up new power plans hrough public-privae paricipaion and regional co-operaion o impor elecriciy from neighboring counries (FD, 2011). ccording o he Bangladesh Power Developmen Board (BPDB) esimaion, peak demand of he elecriciy will be increased faser rae. The peak demand of elecriciy will be 10,283 Megawa (MW) by In Bangladesh a huge amoun of naural gas is used o generae elecriciy, as mos of he exising power plans are gas-based. bou 83% of oal elecriciy was produced from gas-based power plans and res of he elecriciy produced from fuel in 2011(FD, 2011). To achieve he arge o generae 10,283 MW by 2015 huge amoun of public and privae invesmen required. In his regard Governmen has aken necessary seps o increase he foreign and domesic invesmen. Governmen has also increased he budge allocaion in power secor over ime. The developmen budge allocaion gradually increased over he year. The allocaion of oal developmen budge in fiscal year was abou TK. 20 billion and for fiscal year i is TK billion, which is abou 26% of oal developmen budge and 7.5 percen of naional budge (FD, 2011). III. Review Of Relaed Sudy The sudy of he characerisics of economic dynamics and elecriciy secor has been an area of ineres of researchers for long ime. However, he pioneering work is invesigaing causal relaionship beween economic growh and energy consumpion was done by Kraf and Kraf (1987). The exising lieraure focuses on developed and some developing economies. Differen resuls have been found for differen counries and differen ime periods. Those sudies used differen proxy variables for energy usage. This sudy will concenrae on he exising lieraure ha is similar o our sudy. a) Lieraure Review: Bangladesh Reviewing he exising lieraure on economic growh and elecriciy consumpion, we find only a few sudies regarding Bangladesh. Mos of hose sudies fall ino he omied variable(s) rap as hey only examined he energy-growh nexus in a bi-variae framework. Bu our sudy include imporan variable like invesmen. hmad and Islam (2011) conduced a research on Bangladesh scenario. They found shor-run unidirecional causaliy running from per capia elecriciy consumpion o per capia GDP wihou feedback applying co-inegraion and VECM based Grangercausaliy es for he period spanning from 1971 o They also found long-run bidirecional causaliy running from per capia elecriciy consumpion o per capia GDP. saduzzaman and Billah (2008) found posiive relaionship beween energy consumpion and economic growh for Bangladesh using daa spanning from and repored ha higher level of energy use led o higher level of growh. Buysse e. al. (2012) invesigaed he possible exisence of dynamic causaliy among elecriciy consumpion, energy consumpion, carbon emissions and economic growh in Bangladesh. The resuls indicae ha uni-direcional causaliy exiss from energy consumpion o economic growh boh in shor and long run, While bi-direcional long run causaliy exiss beween elecriciy consumpion and economic growh bu no causal relaionship exiss in shor run. pplying Granger causaliy ess on he nexus beween economic growh

4 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis and elecriciy generaion, lam and Sarker (2010) claims ha here exiss shor run causal relaionship running from elecriciy generaion o economic growh wihou feedback. On he oher hand Mozumder and Marahe (2007) found reverse relaionship ha is unidirecional causaliy from GDP o elecriciy consumpion for Bangladesh over he period 1971 o 1999 by employing Co-inegraion and Vecor Error Correcion Model (VECM). b) Lieraure Review: Souh sia There are some noable sudies conduced in he Souh sian region. Ghosh (2002) conduced a sudy using annual daa covering he period of o in India and found ha unidirecional Granger causaliy exised running from economic growh o elecriciy consumpion. Bu, he same auhor in 2009 claimed ha here was unidirecional causaliy running from economic growh o elecriciy consumpion in he shor run. Lean and Shahbaz (2012) claim ha elecriciy consumpion has posiive impac on economic growh and bi-direcional Granger causaliy has been idenified beween elecriciy consumpion and economic growh in Pakisan. However, hmad and Jamil (2010) using annual daa for he period of , found he presence of unidirecional causaliy from economic aciviy o elecriciy consumpion. Morimoo and Hope (2004) poined ou ha curren as well as pas changes in elecriciy supply have a significan impac on a change in real GDP in Sri Lanka. Saeki and Hossain (2011) found exisence of unidirecional causaliy from economic growh o elecriciy consumpion in India, Nepal and Pakisan, and from elecriciy consumpion o economic growh in Bangladesh. c) Lieraure Review: Developed and Developing Counries safu-djaye (2000) invesigaed he exisence of causal relaionship beween energy consumpion and oupu in four sian counries using he co-inegraion and error-correcion mechanism and poined ou ha unidirecional causaliy ran from energy consumpion o oupu in India and Indonesia. However, bi-direcional causaliy was found in case of Thailand and he Philippines. kinlo (2009) conduced a sudy in Nigeria o invesigae relaionship beween economic growh and elecriciy consumpion during he period 1980 o The resul exhibis ha here is unidirecional Granger causaliy running from elecriciy consumpion o real GDP and suggesed use of elecriciy could simulae he Nigerian economy. China, he larges developing counry uses huge amoun of energy. Recenly, more aenion has been given in China o deermine he shor run and long run causal relaionship beween elecriciy consumpion and economic growh. However, conflicing resul have been revealed by differen researchers. Using yearly daa covering he period 1978 o 2004 and applying coinegraion and Granger causaliy approaches Yuan e. al. (2007) indicaed ha elecriciy consumpion and real GDP for China were co-inegraed and here was unidirecional Granger causaliy from elecriciy consumpion o real GDP. Shiu and Lam (2004) claimed ha causaliy exised running from elecriciy consumpion o economic growh for he period 1971 o On he oher hand, Lin (2003) covered he period and found ha economic growh causes elecriciy consumpion. Chonanawa e. al. (2008) invesigaed he exisence of causal relaionship beween energy economic growh nexus in 30 OECD developed economies and 78 non-oecd developing economies. They poined ou ha causaliy running from energy consumpion o GDP. However, he resul was more prevalen in he developed OECD economies compare o he developing non-oecd economies. Employing coinegraion and VECM, Belloumi (2009) poined ou Tunisian per capia energy consumpion in he shor-run caused o per capia GDP and here were bidirecional long-run causal relaionship beween he series for he period of 1971 o Ouedraogo (2010) found ha here was a long run bi-direcional causal relaionship beween elecriciy consumpion and GDP for Burkina Faso for he period spanning from 1968 o 2003 and claimed elecriciy was a significan facor in economic developmen. Chandran e. al. (2010) considered he relaionship beween elecriciy consumpion and real GDP growh in case of Malaysia. Employing auoregressive disribued lag (RDL), he resul indicaed ha here was posiive relaionship beween elecriciy consumpion and real GDP. The causaliy es confirms he uni-direcional causal flow from elecriciy consumpion o real GDP and he findings conclude ha Malaysia is an energy-dependen counry. Therefore he above lieraure reveals ha due o he applicaion of differen economeric mehodologies and differen sample sizes, he empirical resuls are very mixed and even vary for he same counry and are no conclusive. IV. a) Daa Descripion Daa Descripion nd Research Mehodology The empirical analysis of he sudy is conduced by using ime series daa of oal Elecriciy consumpion, oal real Gross Domesic Produc (GDP) and oal invesmen for he period spanning from 1981 o 2011 (Fiscal Year, July o June). The choice of he saring period was consrained by he availabiliy of ime series daa on elecriciy consumpion. The daa of oal elecriciy consumpion is expressed in erms of Gigawa hours (GWh) and obained from annual repor, published by Bangladesh Power Developmen Board s Global Journal of Managemen and Business Research Volume XII Issue XI Version I July

5 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis (BPDB). On he oher hand, real GDP (which is a proxy o economic growh) and oal invesmen series is in consan price (base year ) of BDT (Billion) and obained from Bangladesh Bureau of Saisics (BBS). The following figure-1 describes he hisorical movemens of oal elecriciy consumpion, real GDP and oal invesmen over he ime period 1981 o ll he series shows upward rend. Fig.1 : Hisorical rends of oal elecriciy consumpion (GWh), oal real GDP and oal invesmen July Global Journal of Managemen and Business Research Volume XII Issue XI Version I Source: BPDB and BBS, To provide an overall undersanding of he chosen variables we include summary saisics for full sample in he following able-1. The able shows ha during he period average elecric consumpion, average real GDP and average invesmen was 11, GWh, TK billion and TK billion respecively. The high sandard deviaions indicae ha elecriciy consumpion, GDP and invesmen are increased in he recen pas in Bangladesh. Table1 : Summary Saisics of real GDP, Invesmen and Elecriciy Consumpion I should be menioned here ha elecriciy consumpion and economic growh shows almos consan correlaion in Bangladesh. The oher wo pairs also presence high ime varying correlaion. Considering he GDP and elecriciy consumpion, he ploed ime varying correlaions range in a corridor wih he lowes value of 0.91 in 1989 and almos near 1.00 res of he years, while correlaions beween elecriciy consumpion and invesmen o be found lowes 0.61 in 1990(Figure-2). We also noe ha he correlaion beween GDP and invesmen mainains high correlaions excep very lile deviaions (6%) in GDP(TK. Billion) Invesmen(TK. Billion) Elecriciy(GWh)-RHS GDP Elecriciy Invesmen Consumpion Observaions Mean Maximum Minimum Sd. Dev

6 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis Fig 4.2 : Time Varying Correlaion beween Elecriciy Consumpion-GDP, Elecriciy Consumpion- Invesmen and GDP-Invesmen EC-GDP ime varying correlaion.8 EC-Invesmen ime varying correlaion.7.96 GDP-Invesmen ime varying correlaion Fiscal Year b) Research Mehodology i. b1 Uni Roo Tes Generally we see ha ime series daa is nonsaionary bu he model can only be buil once he given ime series are saionary. ccording o he Engle and Granger (1987) if independen series are saionary hen he series are said o be co-inegraed. To invesigae, wheher he given ime series are saionary, here are several procedure found in he economeric lieraure. I is eviden ha each es has is own meris and demeris. In our sudy, we use wo es in his regard such as ugmened Dickey Fuller (1979) and Phillips Peron (1988) es o avoid he criicisms of individual es. ppropriae lag lenghs are seleced according o he kaike Informaion Crierion (IC) mehod. We performed he DF ess based on he following model y n 0 1y 1 1 i1 y e... (i) Where = firs difference operaor, n= opimal number lags, e = disurbance erm consider as a whie noise error, y= ime series ha is GDP, invesmen and elecriciy consumpion. The PP es are based on he following model Y 1... (ii) by Where = firs difference operaor, α = consan, ε = error erm and y= ime series ha is GDP, invesmen and elecriciy consumpion. ii. b2 Johansen Co-inegraion and VECM For co-inegraion es i is required ha he chosen ime series ha is GDP, invesmen and elecriciy consumpion o be inegraed of he firs order I (1), when his condiion saisfy hen we can move ino examine he exisence of long run co-inegraion i Fiscal Year Fiscal Year relaionship of he chosen ime series. In his regards, we will be employed Johansen co-inegraion es. Johansen mehod indicaes he maximum likelihood procedure o idenificaion of exisence of co-inegraing vecors for chosen non-saionary ime series daa. The Johansen mehods allow us o deermining he number of co-inegraing vecor. These ess direcly invesigae he inegraion in Vecor uo-regression (VR) model. ppropriae lag lenghs are seleced according o he kaike Informaion Crierion (IC) mehod. We can wrie he VR of order p in he following way. z c z p p... (iii) z Where represens n 1 vecor ha inegraed I (1) and is n 1-vecor innovaions. There are wo differen likelihood raio es are proposed by he Johansen namely, Trace Tes= race = -T j r1 Maximum Eigen Value Tes= ˆ r1 )... (v) k Where T= Sample size and = Esimaed values of characerisic roos ranked from larges o smalles. I should be menioned ha above equaion (iv) ha is race es ( race ) ess he null hypohesis of coinegraing vecor agains he alernaive hypohesis of n co-inegraing vecors and equaion (v) ha is maximum Eigen value es ( max ) ess he null of r coinegraing vecors agains he alernaive hypohesis of r+1 coinegraing vecors. If wo or more series co-inegraed hen i implies ha causaliy exiss among he series bu i does no indicae he direcion of he causal relaionship. Thus ln(1- ˆ j ) ˆ j z... (iv) max.94 = -T ln(1- Global Journal of Managemen and Business Research Volume XII Issue XI Version I July

7 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis he dynamic Granger causaliy can be capured based on Vecor Error Correcion Model (VECM) will be employed o deermine he causaliy direcion beween economic growh, elecriciy consumpion and invesmen. To ascerain he causaliy direcion, we esimae he following VECM: EC GDP Inves 1 2 = i 21i 31i 12i 22i 32i 13i 23i 33i ECi GDP i Inves i (vi) July Global Journal of Managemen and Business Research Volume XII Issue XI Version I Where refers o he error correcion erm derived from he long-run co-inegraing relaionship. This is also measures he magniude of he pas disequilibrium and he coefficiens of represens he deviaion of he dependen variables from he long run equilibrium. iii. b3 Shor-run and long-run elasiciy Saeki and Hossain (2011) applied following model o obain shor-run (Model vii) and long-run (Model- viii) elasiciy. We will be employed he same... (viii) Where he random error erm, and are he parameers o be esimaed This equaion is augmened wih lead and lagged differences of he dependen and explanaory variables o conrol for serial correlaion and endogenous feedback effecs. V. Empirical Resuls The order of inegraion of he ime series is invesigaed by applying boh ugmened Dickey Fuller (1979) and Philips Perron(1988) ess. We include rend and consan erm in he boh ess. The following able- 2 exhibis he resuls of uni roo ess on naural logarihms of he levels and he firs differences of real Table 2 : Uni roo es resuls +.(vii) i GDP, elecriciy consumpion and invesmen, where evidence was found in favour of he null hypohesis ha all series conain uni roos a level. However, we rejec he null hypohesis for he firs differences of all series. Therefore, i is concluded ha all he series are inegraed of he order 1 i.e. I (1). Thus co-inegraion ess can be applied for all variables. s jsi 1 + u Variables Level Firs Difference DF P-value PP P-value DF P-value PP P-value GDP * * 0.00 Lag(3) Lag(3) Elecriciy * * 0.00 Consumpion Lag(3) Lag(3) Invesmen Lags(1) * ** 0.05 Noes: *indicaes significan a 1% level, ** indicaes significan a 5% level Our nex aim is o invesigae wheher or no real GDP, elecriciy consumpion and invesmen share common long run relaionships. To achieve his, as explained earlier we consider boh he race saisic and Maximum Eigen Value Saisic es o invesigae he long run relaionship among he variables. The primary - sep in he Johansen co-inegraion es is o deermine he opimal lag lengh for each VR model. This sudy idenified he opimal number of Lag by using kaike Informaion Crieria (IC) and considered he minimized

8 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis crierion value. The resuls of Johansen co-inegraion es shown in able-3, where we find ha he null hypohesis of no co-inegraion can be rejeced using boh he race saisic ( ) and Max Eigen Value race max Saisics ( ) a 5% level. The calculaed values are boh greaer han he criical values. This simply means ha here is a long run relaionship among elecriciy consumpion, real GDP and invesmen for Bangladesh. Toal GDP, Elecriciy Consumpion and Invesmen Null hypohesis Table 3 : Resul of he Johansen Co-inegraion Tes Trace Saisic ) ( race We have found ha he chosen ime series are co-inegraed and here exis long run relaionship ha indicaes here mus be Granger causaliy in a leas one direcion, bu i does no indicae he direcion of emporal causaliy among he variables. The direcion of causaliy can be divided ino shor and long run causaion. We hen, herefore explore he dynamic Granger causaliy in he (Vecor Error Correcion Model) VECM specificaion o obain boh shor-run and longrun direcion. The shor-run causal effecs can be obained by he F-es of he lagged explanaory variables, while he -saisics on he coefficien of he lagged error correcion erm in model (vi) indicaes he significance of he long-run causal effec. Beginning wih he long-run causaliy, he coefficien of is having a negaive sign in all equaions excep when GDP acs as he dependen variables. In invesmen equaion we can see ha he coefficien of is (able-4) and is significan a 05% level ha confirms he unidirecional long run relaion from GDP and elecriciy consumpion o invesmen wih no feedback. The significan negaive coefficien of error correcion erm implies ha he variable is no overshooing and hus he long run relaionship is aainable in invesmen equaion. Tha is if he sysem is exposed o a shock, i will be converge o he long run equilibrium a 35% per year. The coefficien of is negaive in elecriciy consumpion equaion bu insignifican. The coefficien of is posiive in GDP equaion which means ha any exogenous shock in one of he variables may be lead o divergence from equilibrium. Therefore in case of shock in he GDP, here may be 3% divergence from equilibrium per year. In he shor-run here is unidirecional causaliy running from elecriciy consumpion o GDP, Elecriciy consumpion o Invesmen and Invesmen o GDP bu no he reverse. This implies ha elecriciy consumpion acs as a simulus o invesmen and economic growh as well and high levels of economic growh demands a high level of elecriciy consumpion. The resul also show ha in he shor run invesmen causes GDP, which simply suggess ha a high level of invesmen 05% Criical Value Max Eigen Value Saisic( ) leads o high level of economic growh. These finding indicaes ha in Bangladesh elecriciy generaion polices should aimed a improving he power infrasrucure and increasing he power supply are he appropriae opions o boos he economic growh. The finding of our sudy is on he line wih earlier findings of hamad and Islam (2011); as hey revealed he causaliy from energy consumpion o GDP for Bangladesh. Our resul is also consisen wih he finding of saduzzaman and Billah (2008) as hey claims higher level of energy use led o higher level of growh in Bangladesh. Our resul also consisence wih he finding of lam and Sarker (2010), as hey revealed ha shor run causal relaionship running from elecriciy generaion o economic growh wihou feedback. The findings of our sudy also parly consisen wih he findings of Buysse e. al. (2012) as heir resuls indicae ha uni-direcional causaliy exiss from energy consumpion o economic growh boh in shor and long run while bi-direcional long run causaliy exiss beween elecriciy consumpion and economic growh bu no causal relaionship exiss in shor run. However, our resul is oally conflicing wih he finding of Mozumder and Marahe (2007) because hey reveal ha here is unidirecional causaliy from GDP elecriciy consumpion for Bangladesh over he period 1971 o This conradicion can be argued upon wih a plausible view ha he ime series are differen. max 05% Criical Value r=o r r Global Journal of Managemen and Business Research Volume XII Issue XI Version I July

9 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis July Global Journal of Managemen and Business Research Volume XII Issue XI Version I a) Shor-run and long run elasiciy We esimae he shor and long run elasiciy based on model (vii) and viii). The esimaed resuls are given below in able-5. The findings indicae ha he shor-run and long-run elecriciy consumpion and invesmen have significan posiive impac on economic growh for Bangladesh. The long-run elasiciy of economic growh. VI. Conclusion nd Policy Implicaions The main goal of his paper was he examinaion of causal inerdependences beween economic growh, elecriciy consumpion and invesmen in Bangladesh. For his purpose, he sudy focused on oal elecriciy consumpion, oal real GDP and oal invesmen for he period spanning from 1981 o This paper applies he ECM model o examine he causal relaionship among he chosen variables. Prior o esing for causaliy, he DP/PP es and Johansen co-inegraion es were used o examine for saionariy and long-run co-inegraion. Resuls from he Johansen co-inegraion es show he exisence of long run equilibrium among he variables, while he causaliy resuls confirm unidirecional causal relaionship running from elecriciy consumpion o economic growh in he shor run. The causaliy resuls also exhibi ha Table 4 : Shor run and long run causaliy resuls Source of Causaion -Shor Run (F-saisic) GDP Elecriciy Invesmen Table 5 : Shor-run and long run elasiciy Source of Causaion Long Run (-saisic) GDP *(.083) 4.15**(0.050) {0.034} 0.54 (0.595) Elecriciy.038(0.84) (0.861) {-0.228} (.318) Invesmen 1.36(0.505) 22.11***(0.000) - {-0.358} -2.44** (0.022) Noe: ***, **, * denoe significance level a 1%, 5% and 10% respecively. { } denoe coefficien of he corresponding Numbers in parenheses ( ) are he corresponding P-values. Shor run elasiciy wih respec o elecriciy consumpion is (0.12) higher han shor-run elasiciy (0.09) and also he longrun elasiciy of economic growh wih respec o invesmen is (0.78) higher han shor-run elasiciy (0.50), indicae ha over ime higher elecriciy consumpion and higher invesmen in Bangladesh give rise o more economic growh. Dependen variable Coefficien P-value Coefficien P-value Coefficien P-value ** *** *** Long run elasiciy Dependen variable Coefficien P-value Coefficien P-value ** *** Noe: ***, **, * denoe significance level a 1%, 5% and 10% respecively. elecriciy consumpion causes invesmen and invesmen causes economic growh bu no he vice versa. The source of causaion in he long run is also found o be he error correcion erms from elecriciy consumpion and economic growh o invesmen. The long run elasiciy of economic growh wih respec o elecriciy consumpion and invesmen are higher han heir shor run elasiciy. This implies ha over ime higher elecriciy consumpion and higher invesmen in Bangladesh give rise o more economic growh. Our overall findings indicae ha Bangladesh is an energy (elecriciy) dependen counry. This implies ha an increase in elecriciy consumpion raises economic growh. We also find ha an increase in elecriciy consumpion raises invesmen and obviously an increase in invesmen raises economic growh. Therefore, emphasis should be given on elecriciy generaion and more invesmen.

10 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis There is no oher alernaive for economic growh han o generaion more power for Bangladesh, needed especially for ransforming ino a middle income counry by However, a quesion may be raise as o wheher elecriciy consumpion could boos he economic growh alone; he answer is simply no. Because, elecriciy consumpion is one of he influencing facors no all. long wih generaion of more power, governmen should ensure a business friendly environmen o encourage local and overseas invesors o inves more. Only in ha case more elecriciy will lead o increased economic aciviies oherwise i would be cosly. In his regard, governmen may ake policy acion o increase power generaion as well as arac local and foreign invesors o inves in energy and oher secors. s we menioned earlier, he findings of our sudy emphasizes he consumpion of elecriciy as a prerequisie of achieving higher economic growh for Bangladesh so high prioriy should be placed no only on power generaion bu also on he issues of appropriae elecriciy disribuion and managemen sysem in he shor-run and medium erm policies of he governmen o ake he counry o middle saus by Bangladesh use huge amoun of gas and fuel o generae elecriciy (Finance Division, 2011). So, Minisry of power, energy and mineral resources may coninue o invesigae and exploi he possibiliies of renewable energy and more use of coal for elecriciy generaion as i can reduce reliance on impored fuels. Renewable energy source and alernaive source of elecriciy generaion may change he power srucure of Bangladesh. The Minisry of Power and energy resources may exrac coal from he Dinajpur coal field and generae elecriciy. Renewable energy echnology has an enormous poenial o solve elecriciy problem in Bangladesh. The energy provided by he sun (solar energy) is many imes greaer han he curren elecriciy demand. The wind, waves and ides have a large poenial as well. I is o be undersood ha renewable energy may be he one of he vial source of fuure elecriciy supply and he said radiional energy source like gas and fuel are coming o an end. s invesmen posiively affecs GDP growh and elecriciy consumpion affecs invesmen, Bangladesh Bank (Cenral Bank of Bangladesh) may under ake appropriae moneary policy o provide loan a cheaper rae in banking secors. The enhancemen of capializaion owards small invesors a cheaper cos helps in expanding exising business and generaes new business aciviies as well ha means craes more employmen opporuniy, increase purchasing power. So, invesmen considered as a leading indicaor of economic aciviy, prosperiy and hence economic growh. References Références Referencias 1. hamad, M. G. and Islam,.K.M. N. (2011); Elecriciy consumpion and economic growh nexus in Bangladesh: Revisied evidences; Energy Policy, volume- 39, pp hmad, E. and Jamil, F. (2010);The relaionship beween elecriciy consumpion, elecriciy prices and GDP in Pakisan, Energy Policy, volume-38, pp lam, K. and Sarker,. R. (2010); Nexus beween Elecriciy Generaion and Economic Growh in Bangladesh ; sian social Science, Volume 6, No. 12, pp kinlo,.e. (2009), Elecriciy Consumpion and Economic Growh in Nigeria: Evidence from Coinegraion and Co-feaure nalysis Journal of Policy Modeling, Vol. 31, pp saduzzaman, M., Billah,.H.M., (2006); Emerging Issues in Bangladesh Economy: Review of Bangladesh s Developmen , Chaper 14: Energy for fuure Bangladesh; Cenre for Policy Dialogue (CPD), pp safu-djaye, J. (2000); The Relaionship beween Energy Consumpion, Energy Prices and Economic Growh: Time Series Evidence from sian Developing Counries, Energy Economics 22, Bangladesh Bank (2012), Cenral Bank of Bangladesh, Economic daa, vailable a hp:// ccess on pril 05, BBS (2012), Bangladesh Bureau of Saisics, vailable a- hp:// ccessed on pril 05, BPDB (2012), Bangladesh Power developmen Board, vailable a- hp:// ccessed on pril 28, Belloumi, M. (2009); Energy Consumpion and GDP in Tunisia: Co-inegraion and Causaliy nalysis, Energy Policy, Volume 37, pp Buysse, J.; Begum, I..; lam, M. J. and Huylenbroeck, G.V. (2012); Energy Consumpion, Carbon Emissions and Economic Growh Nexus in Bangladesh: Co-inegraion and Dynamic Causaliy nalysis; Energy Policy, Volume-45, pp Chandran, V.G.R., Madhavan, K. and Sharma, S. (2010), Elecriciy Consumpion growh Nexus: The case of Malaysia, Energy Policy, volume 38, pp Chen, S-T., Kuo,H-I and Chen, Chi-C. (2007); The relaionship beween GDP and elecriciy consumpion in 10 sian counries, Energy Policy, vol. 35, pp Chonanawa, J., Hun, L.C., Pierse, R., (2008); Does energy consumpion cause economic growh? Global Journal of Managemen and Business Research Volume XII Issue XI Version I July

11 Elecriciy Consumpion and Economic Growh in Bangladesh: Co-Inegraion and Causaliy nalysis July Global Journal of Managemen and Business Research Volume XII Issue XI Version I Evidence from a sysemaic sudy of over 100 counries; Journal of Policy Modeling, Volume, 30, issue 2, pp CPD, 2011, Sae of Bangladesh Economy in FY (second Reading), Cenre for Policy Dialogue(CPD), Dhaka. 16. Engle, R. F. and Granger, C. W. J. (1987) Coinegraion and Error Correcion: Represenaion, Esimaion, and Tesing. Economerica, vol. 55, pp Finance Division (FD 2011), Power and Energy Secor Road Map: n Updae, Minisry of Finance, Bangladesh. 18. Ghosh, S. (2002); Elecriciy consumpion and economic growh in India, Energy Policy, Volume, 30 pp Ghosh, S. (2009); Elecriciy supply, employmen and real GDP in India: evidence from co-inegraion and Granger-causaliy ess, Energy Policy, volume 37, pp Gujarai, D. and Porer, D. (2009); Basic Economerics, 5h revised ediion, London, McGraw Hill higher educaion. 21. Johansen, S. (1988) Saisical analysis of coinegraion vecors, Journal of Economic Dynamics and Conrol, vol. 12, pp Kraf, J., Kraf,., (1978); On he relaionship beween energy and GNP, Journal of Energy Developmen, volume- 3, pp Lean, H. H. and Shahbaz, M. (2012), The dynamics of elecriciy consumpion and economic growh: revisi sudy of heir causaliy in Pakisan, Energy, 39, Lin, B. (2003), Srucural change, efficiency improvemen and elecriciy demand forecasing (in Chinese), Economic Research, vol. 5, pp Morimoo, R., Hope, C., The impac of elecriciy supply on economic growh in Sri Lanka; Energy Economics, volume 26, pp Mozumder, P., Marahe,., (2007); Causaliy relaionship beween elecriciy consumpion and GDP in Bangladesh. Energy Policy, volume- 35, pp Ouedraogo, I. M. (2010); Elecriciy Consumpion and Economic Growh in Burkina Faso: Co- Inegraion nalysis, Energy Economics 32, Saeki, C. and Hossain, M.S. (2011); Does Elecriciy Consumpion Panel Granger Cause Economic Growh in Souh sia? Evidence from Bangladesh, India, Iran, Nepal, Pakisan and Sri- Lanka, European Journal of Social Sciences, Vol.25, No.3, pp Shiu, lice and Lam,Pun-Lee (2004), Elecriciy consumpion and economic growh in China, Energy Policy, Vol. 32 No. 1, pp Temple, F. (2002), Energy Subsidies in Bangladesh: Magniude and Beneficiaries. Dhaka Chamber of Commerce and Indusries, June 2009, Bangladesh. 31. Yuan, J., Zhao, C., Yu, S., and Hu, Z. (2007); Elecriciy Consumpion and Economic Growh in China: Co-inegraion and Co-feaure nalysis, Energy Economics 29,