Abstract
This paper investigates the causal relationship between primary energy consumption, energy prices and real GDP for India, using cointegration and error correction modelling techniques. Using annual data for the period 1977–2014, the study finds that real GDP, energy consumption and its prices are cointegrated and that in the long run energy consumption and its prices Granger cause real GDP; real GDP and energy consumption Granger cause prices. Our empirical results also indicate that there is a unidirectional short run causality running from real GDP to energy consumption and from energy consumption to prices without any feedback effect. The analysis of this study, hence, imply that energy serves as an important source of GDP growth in India and energy conservation policies that aim at curtailing energy use, must find ways of reducing consumer demand and efficiency in use.
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