Causal Relationship between Electricity Consumption and GDP: Plausible Explanation on Previously Found Inconsistent Conclusions for India

Abstract

Using cross-state panel data and error correction Granger causality model we found trustworthy results for India that were non-consistent in previous literature. We found that the electricity consumption and per capita income cause each other. We argue our research to be more credible because we use 254 data points whereas, previous researchers have given their conclusions only on 30 - 40 data points. There is feedback effect of both the variables and effect of electricity consumption is 40 times more than that of income to electricity. Furthermore, analysis at disaggregated level of electricity consumption suggests that domestic and heavy industry electricity consumption causes income growth and not the commercial, light industry, and agricultural electricity consumption.