Measuring the relationship between energy consumption and production of the selected SAARC countries: panel co-integration and causality analysis

Abstract

PurposeThis study aims to find out the dynamic and causal long-run and the short-run relationship between energy consumption (electricity usage) and energy production (electricity creation) and also find out the relationship of these two variables based on past values for the SAARC nations (Pakistan, India, Bangladesh, Sri Lanka and Nepal).Design/methodology/approachVector auto-regressive (VAR), auto-regressive distributive Lag (ARDL) and Granger causality test have been used in this study to estimate the dynamic and causal relationship between variables.FindingsThe unit-root tests were found insignificant at a magnitude but significant at the initial difference. VAR test results were found insignificant, which means co-integration among variables exists, which was tested by ARDL approach. Results suggested that energy consumption has a short-run relationship with energy production, but it was found insignificant in the other way round. The results of this study also suggest that both variables cause each other in the long run.Research limitations/implicationsThis study was conducted in a limited environment as we do not have access to energy policies of SAARC countries, and also data access was limited; only five countries’ data was available. This study can help government bodies and policymakers to exchange the electricity across borders to diminish the electricity shortage in the SAARC region, as countries with abandoned resources can produce electricity at a little cost.Originality/valuePenal data for this study was collected from World Development Indicators from the year 1971 to 2015.