Electricity consumption and NSDP nexus in Indian states: A panel analysis with structural breaks

Abstract

This paper seeks to examine the energy-growth nexus for major Indian states for the period 1980-2012. The study uses the electricity consumption as proxy for energy consumption and economic growth is represented by net state domestic product. The study applies panel endogenous structural break models that captures cross sectional dependence as well heterogeneity across sample units. The results indicate a long-run equilibrium relationship between energy consumption and economic growth of sample states. The results of causality suggest that there is bi-directional causal relationship between energy consumption and economic growth with heterogeneity across sample states, causality running from economic growth to energy consumption is more often than otherwise. Based on these results, we infer that electricity conservation policies may be fruitful without much impact on the growth process of these states. Nevertheless, we suggest that instead of integrated policy approach for all Indian states, state specific policy would be more effective.