Causality Relationship between Electric Power Consumption and Economic Growth in Malaysia and Thailand: ARDL Bound Testing Approach

Tanattrin Bunnag

doi:10.32479/ijeep.11813

Abstract

This paper examined the causal relationships between per capita electric power consumption and economic growth per capita in Malaysia and Thailand. The data used in this study was the yearly data from 1971 to 2014. The ARDL and Granger causality approaches were employed. Overall, the empirical results showed that it had established a long-run relationship between electric power consumption and economic growth. Moreover, the Granger causality approach recognized a one-way causal direction flowing from economic growth to electric power consumption in Malaysia. However, for Thailand, empirical results had no long-run relationship between electric power consumption and economic growth. Therefore, the Granger causality approach had recognized no way of causal direction flowing from electric power consumption to economic growth. Finally, the empirical results of this study provided policymakers a better understanding of energy consumption and economic growth nexus to formulate energy policy in Malaysia and Thailand. In addition, the government of Malaysia should consider the economic situation when implementing the relevant energy policies.

Highlights

Energy consumption and economic growth have become important research topics in recent years
This study investigates the long-run and causal relationships between per capita electric power consumption and gross domestic product (GDP) per capita in Malaysia and Thailand from 1971 to 2014 by employing electric power consumption per capita and GDP per capita variables
We use the two-step procedure from the Engle and Granger model: (1) We explore the long-run relationships between the variables using the recently developed Autoregressive distributed lag (ARDL) bounds testing cointegration approach

Summary

Introduction

Energy consumption and economic growth have become important research topics in recent years. International Energy Agency (IEA) has predicted that energy consumption will increase 53% by 2030, and 70% of the growth will happen in developing countries such as ASEAN countries (International EnergyAgency, 2013). In this study, we will focus on ASEAN countries such as Malaysia and Thailand. Appliance ownership, economic improvement, and changing lifestyles (Green Technology, 2017). For Thailand, the residential sector consumed the electricity about 23.01% of the total electricity consumption of Thailand in 2017 (DEDE, 2017). It increases continuously due to the growth of the economy. The electricity demand growth rate was 5.20% per year, rising from 32,799.46 GWh in 2011 to 44,373.96 GWh in 2017 (EPPO, 2017)

Methods

Results

Conclusion