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Re-investigating the electricity consumption and economic growth nexus in Portugal

Chor Foon Tang (), Muhammad Shahbaz () and Mohamed Arouri ()

Energy Policy, 2013, vol. 62, issue C, 1515-1524

Abstract: In the previous decades, a number of studies have been conducted to analyse the causal relationship between electricity consumption and economic growth in the Portuguese economy. However, the evidence remains controversial because the previous studies do not provide clear causality evidence. This might be attributed to the omitted variables bias because most previous studies only focus on the relationship between electricity consumption and economic growth in a bi-variate model. This paper attempts to re-investigate the relationship between electricity consumption and economic growth in Portugal using a multivariate model. Based on the bounds testing approach to cointegration and the Granger causality test within the vector error-correction model (VECM), our empirical results confirm the presence of cointegration among the variables. Moreover, there is evidence of bi-directional causality between electricity consumption and economic growth in the short- and long-run. This suggests that energy is an important source of economic growth in Portugal. Therefore, energy conservation policies should not be implemented because it would deteriorate the process of economic growth and development of the Portuguese economy.

Keywords: Electricity-growth; Financial development; Relative price (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:62:y:2013:i:c:p:1515-1524

DOI: 10.1016/j.enpol.2013.07.073

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