Energy Consumption and GDP Nexus in Bangladesh

Abstract

This chapter presents an analysis on energy consumption and economic growth nexus for Bangladesh. The relationship between economic growth and energy consumption has received significant attention in the economic growth literature (see, for example, Mozumder and Marathe, 2007). This is because while energy is an impetus for economic growth, excessive energy consumption is also detrimental to environmental sustainability (Jafari et al., 2012). As such, there have been growing concerns in countries around the world, including Bangladesh, to explore alternative energy sources and energy conservation options. Rapid economic growth together with an increasing population has resulted in a notable increase in energy consumption in Bangladesh (Islam and Khan, 2016). Given that there is a potential trade-off between economic growth and energy consumption, it is vital to investigate the interrelationship between energy consumption and other economic activities in Bangladesh as the country is also focusing on energy conservation while achieving rapid economic growth and tackling other socio-economic challenges. This chapter, using Autoregressive Distributed Lag (ARDL) and Vector Error Correction Model (VECM) frameworks, investigates the causal relationship between energy consumption, Gross Domestic Production (GDP), Gross Capital Formation (GFC), and total labour force in Bangladesh during 1990–2014. The results reveal that GDP and GFC positively contribute to energy consumption, while an increase in the labour force reduces energy consumption. It was also found that, in Bangladesh, energy positively influences GFC. Nevertheless, no evidence was found to argue that energy consumption has a positive impact on GDP and an adverse impact on the labour force. As the results also indicate that there is only a unidirectional causality running from GDP to energy consumption (conservation hypothesis) in the short run as well as in the long run, energy conservation policies could be implemented in Bangladesh with limited or no adverse impact on the economy (GDP).