What is it about?

The present study explores the empirical relationship between electricity consumption, trade openness and economic growth in India utilizing cointegration tests and Granger causality vector error correction model for the period 1971–2016. The results of the ARDL model reveal that the variables are cointegrated. The robustness of the long‐run relationship between variables is confirmed by applying Hatemi‐J cointegration model. The empirical results show that the electricity consumption statistically significantly stimulates economic growth in India both in long term and short term. However, the elasticity of economic growth with respect to electricity use is found to be higher in the long term than that of the short term. Furthermore, we find the existence of a long‐term Granger causality flowing from electricity use to economic growth. In addition, the electricity consumption is also commanded by economic growth in the short‐run. As a broad policy implication, India needs to focus on the development of the sustainable mode of electricity production for achieving high economic growth in the years to come.

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Why is it important?

This work validates the common sense of a layman that electric power is the lifeblood of the Indian economy.


Improvement in energy efficiency and reduction in CO2 emissions are equally important for mitigating environmental pollution. Therefore, supply-side policies aimed at improvement in capacity utilisation of power plants and reduction in transmission losses, and demand-side management policies like adoption of power-saving devices and enforcement of energy efficiency regulations can be initiated without any reduction in end-use utility of power. Finally, it is argued that India should explore more cost-effective and sustainable alternatives of electricity, such as wind, solar and hydropower. These novel findings hold policy implications for other developing countries as well.

Prof. Ramphul Ohlan
Maharshi Dayanand University

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This page is a summary of: Relationship between electricity consumption, trade openness and economic growth in India, OPEC Energy Review, September 2018, Wiley, DOI: 10.1111/opec.12134.
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