New Insights Into Electricity Consumption and Economic Growth Nexus in Transition Economies

Sammanfattning: This paper explores the long-run and the short-run causality relationships between electricity consumption, economic growth, and inflows of foreign direct investments in 17 European transition economies on the period between 1992 and 2009 for the purpose of designing an optimal energy policy in these countries. This paper employs the newly developed dynamic panel cointegration techniques to explore the direction of the causality links between the selected variables. The results do not confirm the existence of the long-run equilibrium relationship in the transition economies between electricity consumption, economic growth, and foreign direct investment. Therefore, the direction of the long-run causalities between the variables could not be identified either. The estimation of the short run causalities showed that interrelationships between electricity consumption and economic growth are country specific, and should be evaluated with caution when designing energy policy. Overall, the results of this study show that the long-run equilibrium relationship between electricity use and economic growth in this region deserves further attention in future research.