Nexus between Electricity Demand and Gross Domestic Product in Sri Lanka: A Cointegration Analysis
University of Ruhuna
June 30, 2008
Electricity has become one of the most essential factors in economic growth in Sri Lanka. This paper applies a simple econometric model to identify the causal relationship between Gross Domestic Product (GDP) and electricity consumption in industrial and commercial sectors of Sri Lanka for the period 1979 – 2006. A causal relationship between GDP and electricity demand was found. Engle - Granger two-step procedure for cointegrating regressions was employed to estimate the short run dynamics, as well as the long run equilibrium or cointegrating relationship between electricity demand and GDP. A unique equilibrium relationship was found. According to the long run relationship, when the GDP increases by one million rupees, the electricity demand goes up by 1.3 Giga Watt hours. The speed of adjustment coefficient is 73 percent and this shows that when the GDP deviates from long-run equilibrium, the electricity demand variable will return to its long term equilibrium at a rate of 73 percent.
Number of Pages in PDF File: 15
Keywords: Electricity Demand, Granger Causality, Cointegration, Error Correction
JEL Classification: C50, C51, C53working papers series
Date posted: August 5, 2010 ; Last revised: March 10, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.437 seconds