A re-examination of the relationship between electricity consumption and economic growth in Malaysia

Abstract

The purpose of this study is to re-investigate the relationship between electricity consumption and economic growth in Malaysia from 1972:1 to 2003:4. This study adopted the newly developed ECM-based F-test [Kanioura, A., Turner, P., 2005. Critical values for an F-test for cointegration in the multivariate model. Applied Economics 37(3), 265–270] for cointegration to examine the presence of long run equilibrium relationship through the autoregressive distributed lag (ARDL) model. The empirical evidence suggests that electricity consumption and economic growth are not cointegrated in Malaysia. However, the standard Granger's test and MWALD test suggest that electricity consumption and economic growth in Malaysia Granger causes each other. This finding provides policymakers with a better understanding of electricity consumption and allows them to formulate electricity consumption policy to support the economic development and to enhance the productivity of capital, labour and other factors of production for future economic growth in Malaysia.