Long-term equilibrium relationship between urbanization, energy consumption and economic activity: Empirical evidence from India

Abstract

The study examines cointegrating relationship between energy consumption, urbanization and economic activity for India using threshold cointegration tests complemented by ARDL (Autoregressive Distributed Lag) bounds testing approach and Johansen–Juselius maximum likelihood procedure for cointegration for the period 1971–2008. Considering the rapid urbanization and growing energy demand in India in recent years, this study is highly pertinent and presents some important results which should guide the policy makers to develop long-term energy and urban policies in India. Threshold cointegration tests suggest the existence of long-run relationship among the variables having endogenous structural breaks or regime shifts. Toda–Yamamoto version of the Granger causality tests indicate unidirectional causality running from energy consumption to economic activity and economic activity to urbanization. The article elaborately discusses the possible reasons behind its empirical findings and prescribes ways and means to enhance energy supply. The findings of the study are critical and warn the need of designing and executing long-term energy and economic policies which judiciously address the issues of incessant urban migration in India to achieve a sustainable growth path. The study also advocates that the consequences of rapid urbanization should be an integral part of long-term energy planning in India.