Electricity consumption, economic growth and trade openness in Kazakhstan: evidence from cointegration and causality

• Published date: 01 September 2018
• Author: Muhammad Shahbaz,Farooq Ahmed Jam,Md Al Mamun,Saleheen Khan
• Date: 01 September 2018
• DOI: http://doi.org/10.1111/opec.12130

Electricity consumption, economic growth

and trade openness in Kazakhstan: evidence

from cointegration and causality

Saleheen Khan*, Farooq Ahmed Jam**, Muhammad Shahbaz***

,

****

and Md Al Mamun*****

,

******

*Department of Economics, Minnesota State University, Mankato, 121 Morris Hall, Mankato, MN 56002,

USA. Email: saleheen.khan@mnsu.edu

**Institute of Graduate Studies, Universityof Malaya, Kuala Lumpur, Malaysia. Email: jam_farooq@yahoo.

co.uk

***Montpelleir Business School, Montpellier, France

****COMSATS University Islamabad, LahoreCampus, Lahore, Pakistan. Email: muhdshahbaz77@gmail.com

*****Department of Economics and Finance, La Trobe University, Melbourne, Vic., Australia. Email:

m.almamun@latrobe.edu.au

******Faculty of Business and Economics, East West University, Dhaka, Bangladesh. Email:

m.almamun@latrobe.edu.au

Abstract

We investigate the relation between electricity consumption and economic growth by incorpo-

rating trade openness, capital and labour in production function of Kazakhstan using annual data

for 1991–2014. We apply the autoregressive distributed lag bounds testing and the VECM Granger

causality approach to examine long-run and causality relation between the variables. Our results

confirm the existence of a long-run relation among the series. The empirical evidence reveals that

electricity consumption adds in economic growth. Trade openness stimulates economic growth,

and capital and labour promote economic growth, as well. The causality analysis shows that

electricity consumption Granger causes economic growth and trade openness. We also document

feedback effect between trade openness and economic growth. Our study provides new insights for

policymakers to articulate a comprehensive economic, trade and energy policy to sustain long-run

economic growth in Kazakhstan.

1. Introduction

Electricity is the prime source of energy and a major policy concern for sustainable

development. Its accessibility helps to meet residential and domestic needs, contributes

to capital and labour productivity, promotes export potentials of countries to create

employment, decreases the poverty level and eventually improves socio-economic

development. As such, electricity plays a vital role in the development of a country,

©2018 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington

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virtually bringing benefits to all productive sectors of an economy. Growing energy

consumption, particularly commercial sector signifies the potential for higher economic

activities of a country (Jumbe, 2004). These facts have attracted many authors to

investigate the role of electricity in different countries. Kraft and Kraft (1978), in their

pioneer work, investigated the relation between electricity consumption and economic

development and other authors follow suit for different countries.

A large body of empirical studies including Aqeel and Butt (2001), Yoo (2005,

2006), Chen et al. (2007), Ho and Siu (2007), Hu and Lin (2008), Jamil and Ahmad

(2010), Narayan and Smyth (2005), Shahbaz et al. (2011), Shahbaz and Lean (2012),

Shahbaz and Feridun (2012), Tang and Shahbaz (2013), Tang et al. (2013), Zeshan and

Ahmad (2013) and Sbia et al. (2014) investigate the relation between electricity

consumption and economic growth and provide mixed results. The mixed empirical

results in the literature primarily reflect the differences among empirical settings—

country, period and estimation methodologies (Al Mamun et al., 2014). For example,

Zhang (2011) investigate the relation between energy consumption and economic

growth in Russia, a country with similar historical energy baggage like Kazakhstan.

Using time-varying methodology, Zhang (2011) finds that energy consumption and

economic growth are complementary, i.e. energy consumption causes economic growth

and resulting economic growth leads energy consumption. Damette and Seghir (2013)

examine the relation between energy consumption and economic growth in oil-exporting

countries namely Brazil, Canada, Mexico, Norway and Russia using panel cointegration

and causality approaches. Damette and Seghir (2013) document that economic growth

has a positive impact on energy consumption. Das et al. (2012) apply a generalise d

method of moments approach to investigate the dynamics of electricity consumption and

economic growth nexus in 45 developing countries over the period 1971–2009. Their

results show a positive relation between electricity consumption and economic growth in

a full panel. They document a positive growth electricity nexus for Asia, the Pacific and

the sub-Saharan African region. Narayan and Smyth (2009) study the relation among

electricity, exports and output in a panel of six Middle Eastern countries and provi de

evidence of a statistically significant feedback effect among these variables.

Squalli (2007) investigates the relation between electricity consumption and

economic growth for OPEC members by using the bounds test based on the unrestricted

error correction model. The paper finds a unidirectional causality running from

electricity consumption to economic growth in Indonesia, Nigeria, UAE and Venezuela

while economic growth Granger causes electricity consumption in Algeria, Iraq, Kuwait

and Libya. Chen et al. (2007) find evidence of long-run bidirectional ca usality between

electricity consumption and economic growth in a panel of 10 Asian countries. They

document a short-run unidirectional causality running from economic growth to

electricity consumption, although the short-run adjustment is slow and sluggish before

©2018 Organization of the Petroleum Exporting Countries OPEC Energy Review September 2018

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