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The Role of Information Communication Technology and Economic Growth in Recent Electricity Demand: Fresh Evidence from Combine Cointegration Approach in UAE

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Abstract

This paper investigates the relationship among information communication technology (ICT), economic growth, and electricity consumption in the case of the UAE. The study covers the period of 1975–2011. We have tested the unit root properties of the variables and applied the Bayer-Hanck combined cointegration approach for the long-term relationship. The innovative accounting approach is applied to test the robustness of the VECM Granger causality findings. Our empirical results confirm the existence of the cointegration between the series. We find that ICT increases electricity demand but electricity prices lower it. Income growth increases electricity consumption. The nonlinear relationship between ICT and electricity consumption is an inverted U-shaped. The causality results reveal that ICT and electricity price Granger cause electricity demand. The feedback effect exists between economic growth and electricity consumption. This paper provides new insights to policy makers in designing a comprehensive energy and ICT policy to sustain economic growth for long span of time, although the feedback effect between economic growth and electricity consumption encourages in continuing electricity supply policies.

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Notes

  1. Walker (1985, 1986) highlighted the significant role of information technology within the energy sector and its associated costs and benefits. Chen (1994) underscores the conceptual background, realities, and limits of the substitution of information for energy.

  2. Houghton, John (2009). ICT and the Environment in Developing Countries: An Overview of Opportunities and Developments, Communications and Strategies 76. p. 40.

  3. SMART 2020-Enabling the low carbon economy in the information age

  4. http://www.itu.int/net/pressoffice/press_releases/2013/05

  5. http://gulfnews.com/business/technology/uae-makes-biggest-gain-in-ict-rankings-1.1259075

  6. http://www.tra.gov.ae/ict_in_uae.php

  7. Denmark, Finland, France, UK Germany, Italy, and Spain.

  8. Hamdi and Sbia (2013) also reported bidirectional causality between electricity consumption and economic growth using Bahrain data.

  9. For instance, Altinay and Karagol (2005) for Turkey; Shiu and Lam (2004a, b) for China; Aqeel and Butt (2001) for Pakistan; Abosedra et al. (2009) for Lebanon; Lee and Chang (2007) for Taiwan; Narayan and Singh (2007) for Fiji Islands; Yoo (2005) for Korea; Solarin (2011) for Botswana; Shiu and Lam (2004a, b) for China; Yuan et al. (2007) for China; Chandran et al. (2009) for Malaysia; Odhiambo (2009b) for Tanzania; Kouakou (2011) for Cote d'Ivoire.

  10. Tang (2008); Aktas and Yilmaz (2008); Jumbe (2004); Odhiambo (2009a); Yang (2000); Zachariadis and Pashourtidou (2007); Shahbaz et al. (2011); Gurgul and Lach (2012); Lorde et al. (2010); Acaravici (2010), Shahbaz and Lean (2012); Ouédraogo (2010), Lean and Smyth (2010).

  11. Shahbaz and Feridun (2012), Mozumder and Marathe (2007), Ho and Sui (2006), Adom (2011), Kwakwa (2012), Narayan and Smyth (2005), Jamil and Ahmad (2010), Ciarreta and Zarraga (2010a), Ghosh (2002), Sami (2011), Solarin and Shahbaz (2013); Solarin and Bello (2011)

  12. We have generated an index of ICT using the principle component analysis. The data is available from the authors upon request.

  13. We have converted the annual series into quarterly data to avoid the problems of degree of freedom and efficient empirical results. We used the quadratic match sum method to transform the variables into a quarter frequency following Romero (2005) and McDermott and McMenamin (2008).

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Authors and Affiliations

  1. Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan

    Muhammad Shahbaz

  2. Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia

    Ijaz Ur Rehman

  3. DULBEA, Solvay Brussels School of Economics and Management, Brussels, Belgium

    Rashid Sbia

  4. Aix-Marseille University CERGAM (4225), Marseille, France

    Helmi Hamdi

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  1. Muhammad Shahbaz
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Correspondence to Ijaz Ur Rehman.

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Shahbaz, M., Rehman, I.U., Sbia, R. et al. The Role of Information Communication Technology and Economic Growth in Recent Electricity Demand: Fresh Evidence from Combine Cointegration Approach in UAE. J Knowl Econ 7, 797–818 (2016). https://doi.org/10.1007/s13132-015-0250-y

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