Does Electricity Consumption affect Economic Growth in Bangladesh?

This research attempts to uncover the relationship between electricity consumption and economic growth in Bangladesh adopting co-integration and causality analysis using time series data spanning from 1972 to 2011. It takes under consideration the variables Gross Domestic Product (GDP), Electricity Consumption (EC) and Carbon dioxide emission (CO2) to fulfill the research objective. Adopting Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) tests of unit root, it is observed that the first differences of all the three variables are stationary which indicates that the variables are co-integrated of order 1. The trace test and maximum Eigen value of Johansen co-integration test confirm that all the variables are co-integrated with one co-integrating vector. Besides, using Impulse Response Functions (IFRs) of Vector Auto-regression (VAR), the possible forecasting for the relationship of the variables has been performed. The empirical result based on Granger F-test reveals existence of unidirectional causality running from Electricity Consumption (EC) to Gross Domestic Product (GDP), Electricity Consumption (EC) to Carbon dioxide emission (CO2) and Gross Domestic Product (GDP) to Carbon dioxide emission (CO2) without having any reverse causation. Thus, it implies that Electricity Consumption (EC) affects both Gross Domestic Product (GDP) and Carbon dioxide emission (CO2) and Gross Domestic Product (GDP) drives only Carbon dioxide emission (CO2) in short run without feedback in the long run