Energy security, electricity, population and economic growth: The case of a developing South Asian resource-rich economy

Abstract

Economic growth and increasing population is driving the demand for energy in developing economies globally including South Asia. Energy security concerns have heightened in these economies, consequently, raising questions in their ability to meet the key sustainable development goals. This paper specifically examines the inter-relationships between energy security captured through the channel of electricity availability based on electricity consumption and economic output in a multivariate framework incorporating the effects of capital formation and population for Nepal, a developing economy in South Asia. Time series econometrics based on the ARDL bounds test approach to cointegration and the Toda-Yamamoto Granger causality tests are used to examine and test for long run equilibrium relationships and causality between 1975 and 2014. We find that there is no long-run relationship between electricity consumption and economic output for Nepal, distinguishing it at the regional level for South Asia. However, a 1% increase in population increases electricity consumption by 4.16% in the long-run. We propose that large scale development of available renewable energy such as hydropower and improvements in energy efficiency will not only strengthen energy security in the long-run but also will help tackling climate change in South Asian developing economies like Nepal.