Electricity Consumption, Technological Innovation, Economic Growth and Energy Prices: Does Energy Export Dependency and Development Levels Matter?

Abstract

Empirical evidences appear to substantiate the hypothesis that electricity consumption is casually linked to economic growth in both the short and the long run. Nevertheless, incorporating new variables on examining the traditional electricity-growth nexus is relatively underdeveloped. This study uses annual data from 1974 to 2011 to examine the long-term and short-term relationship among electricity consumption, economic growth, energy prices and technological innovation for Canada, Ecuador, Norway and South Africa. These countries were selected on the basis of energy export dependency and development level. Based on the results derived from the methodology of ARDL and VECM, they suggest that developing economies should not simply reduce their consumption on fossil fuel powered electricity. Although technological innovation does not significantly influence the long-term variation in fossil fuel powered electricity, it is bilaterally tied with economic growth for all countries. This result indicates the applicability of the endogenous growth theory on the electricity-growth nexus.