A Cointegration and Causality Analysis for Assessing Sustainability and Security in Indian Energy Sector
Keywords:
cointegration, energy consumption, error correction mechanism (ECM), granger causality, gross domestic product (GDP), India, stata/se/10.0, stationary, unit root test
Abstract
The purpose of the paper is to establish the long run relationship between gross domestic product (GDP) and energy consumption in India. This is known that energy plays a vital role for all the economies and the relationship relates to levels and changes in economic development approximated by GDP. Literatures also reveal that the greater is region's GDP, the greater is the energy consumption. The data of three decades (1981-2011) has been taken for analysis and results are analyzed in the software package Stata/SE 10.0. The time series analysis is used to develop conceptual framework, which includes testing of stationary using unit root test, Granger causality, cointegration and error correction mechanism (ECM). On applying cointegration, it is found that two variables are co-integrated of order one (I~ (1)). The Granger test results confirmed the existence of unidirectional causality running from electricity consumption to economic growth. The same has been verified by ECM approach and a long-run relationship has been developed. This implies that over time higher electricity consumption in India give rise to more economic growth. The proposed framework and results draw a rough road map with much accurate estimations for national policy strengthening in the future to assess the sustainability in Indian energy sector.
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2013-06-24
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