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Nexus between electricity consumption and economic growth: a study of Gibraltar

Abstract

In this paper, we examine the long-run cointegration relationship between electricity consumption and GDP per capita in Gibraltar over the period 1996–2012. We examine the short-run and long-run and the causality nexus. The results show electricity consumption has a long run association with the output per capita at levels. Moreover, we note a statistically significant coefficient of electricity consumption the short run (0.53) and in the long-run (1.46). Moreover, a unidirectional causality running form electricity consumption to GDP per capita is noted. Hence, electricity consumption causes income growth in the economy and therefore we recommend efficient use of electricity consumption in key productive sectors of the economy as a way forward to spur growth in the small semi-sovereign economy of Gibraltar.

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Fig. 1

Notes

  1. 1.

    Koomey (2011) estimates that between 1and 2 % of the world wide electricity in 2010 were used for data centers and that the electricity consumption of data centers world-wide increased by 56 % from 2005 to 2010.

  2. 2.

    We also thank the reviewers for pointing this out in the second round of the review comments.

  3. 3.

    In most cases, the results from using either energy consumption or electricity consumption data are qualitatively similar.

  4. 4.

    It is also worth noting that GDP that data older than 1996 could be distorted by the military activities of the Royal Forces.

  5. 5.

    Although the sample data for electricity consumption is from 1970 to 2012, the per capita income data is from 1996 to 2012 and hence the analysis is restricted to the latter. Additionally, it also should be taken into account that in 1984 the Royal Forces contributed 60 % to the GDP and the contribution was less than 6 % in 2008.

  6. 6.

    The danger of using approximated data is that it could result in unreliable conclusions. The authors are thankful to the anonymous reviewers for highlighting this and insisting that only actual available data be used in the analysis in the first round of review.

  7. 7.

    For more information, readers are requested to see http://www.bbc.com/news/uk-27098178 and http://www.gbc.gi/news/3556/power-station-tender-process-near-end,-as-cm-orders-%27telecoms-review%27).

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Correspondence to Ronald Ravinesh Kumar.

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Kumar, R.R., Stauvermann, P.J. & Patel, A. Nexus between electricity consumption and economic growth: a study of Gibraltar. Econ Change Restruct 48, 119–135 (2015). https://doi.org/10.1007/s10644-014-9156-0

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Keywords

  • Electricity
  • ARDL cointegration and causality
  • Gibraltar