Economic Growth, Financial Development, Urbanization and Electricity Consumption Nexus in UAE

This study aims to explore the relationship between economic growth, urbanization, financial development and electricity consumption in United Arab Emirates for 1975-2011 period. ARDL bounds testing approach is employed to examine long run relationship between the variables in the presence of structural breaks. The VECM Granger causality is applied to investigate the direction of causal relationship between the variables. Our empirical exercise validated the cointegration between the series in case of United Arab Emirates. Further, results reveal that inverted U-shaped relationship is found between economic growth and electricity consumption. Financial development adds in electricity consumption. The relationship between urbanization and electricity consumption is also inverted U-shaped. This implies that urbanization increases electricity consumption initially and after a threshold level of urbanization, electricity demand falls. The causality analysis finds feedback hypothesis between economic growth and electricity consumption i.e. economic growth and electricity consumption are interdependent. The bidirectional causality is found between financial development and electricity consumption. Economic growth and urbanization Granger cause each other. The feedback hypothesis is also found between urbanization and financial development, financial development and economic growth and same is true for electricity consumption and urbanization