Electric power consumption, foreign direct investment and economic growth. A comparative study of India and Pakistan
| DOI | https://doi.org/10.1108/20425941311313100 |
| Published date | 01 January 2013 |
| Date | 01 January 2013 |
| Pages | 55-65 |
| Author | Abdullah Alam |
| Subject Matter | Public policy & environmental management |
Electric power consumption,
foreign direct investment
and economic growth
A comparative study of India and Pakistan
Abdullah Alam
International Islamic University Islamabad, Islamabad, Pakistan
Abstract
Purpose – The purpose of this paper is to find potential causality and comparative relationships
between electric power consumption, fo reign direct investment and ec onomic growth for
India and Pakistan.
Design/methodology/approach – Granger causality tests have been employed for estimating the
short and long run relationships between the variables, along with the adoption of co-integration
and error correction mechanism.
Findings – Empirical evidence for India covering a period of 1975-2008 indicates long run causalities
for electric power consumption and foreign direct investment boosting economic g rowth, electric
power consumption and economic growth impacting foreign direct investment. ForPakistan, causality
was established for foreign direct investment and economic growth inducing electric power
consumption in the long run.
Practical implications – For India, there is a strong need of policy that would guarantee secure and
continued supply of electricity, as enhanced electric consumption is expected to boost foreign direct
investment and economic growth. Pakistan should aim for cost-effective, stable and environment
friendly alternate to fossil fuels as the main source of its electric power generation.
Originality/value – Literature on the electricity consumption-FDI-economic growth nexus is scarce.
The present study adds to this strand of literature. Also for the first time, in this scenario, this paper
uses two economies (India and Pakistan), provides a comparative analysis of the empirical results and
presents prospective explanations for the observed causality differences between the two economies.
Keywords India, Pakistan, National economy, Economic growth, International investments,
Electric power consumption, Foreign direct investment, Energy economics
Paper type Research p aper
1. Introduction
Studies on economic growth and its determinants are abundant in literature.
Researchers have established various determinants of the economic growth and
have tried to establish relationships between these determinants and g rowth. Energy
consumption tends to define the growth capabilities of an economy; greater the
utilization of energy, more will be the growth and enhanced will be the overall
development of the economy. Existing literature on growth-energy consumptio n
(or growth-electricity consumption) nexus is quite developed now (see e.g. Kraft and
Kraft, 1978; Akarca and Long, 1980; Erol and Yu, 1987; Masih and Masih, 1996, 1998;
Soytas and Sari, 2003; Oh and Lee, 2004; Chen et al., 2007; Yuan et al., 2008; Apergis and
Payne, 2009; Chandran et al., 2010; Lang et al., 2010); although there has not been
an empirical consensus on the direction of the causality or, for that matter, the existence
of causality relationship between electricity consumptio n and economic growth.
Most of the above-mentioned studies have employed bi-variate models
encompassing growth and electricity consumption. This may not be the right
The current issue and full text archive of this journal is available at
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WorldJour nal of Science, Technology
and Sustainable Development
Vol.10 No. 1, 2013
pp. 55-65
rEmeraldGroup Publishing Limited
2042-5945
DOI 10.1108/20425941311313100
55
Electric power
consumption
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