Energy-GDP Relationship: A Causal Analysis for the Five Countries of South Asia

Abstract

We investigate the causal relationship between GDP and different types of energy consumption for the five South Asian Countries; Pakistan, India, Sri Lanka, Bangladesh and Nepal by using Error Correction Model and Toda and Yamamoto (1995) approach. For Pakistan evidence shows that there is unidirectional Granger causality running from coal to GDP, and unidirectional Granger causality running from GDP to electricity consumption and total energy consumption. For India no causality in either direction between GDP and different energy consumption is detected. For Sri Lanka there is unidirectional Granger causality running from GDP to electricity consumption and total energy consumption. For Bangladesh unidirectional Granger causality is detected from GDP to electricity consumption and from gas consumption to GDP. For Nepal causal direction is from petroleum to GDP.

Keywords: Economic Growth, Granger Causality, Unit Root and cointegration, Error Correction Model, Toda and Yamamoto Procedure

JEL Classification: C5, D12, O53