Investigating the causal relationship between electricity consumption and sectoral outputs: evidence from Egypt

Abstract

The aim of this study is to investigate the causal relationship between electricity consumption and real output at the macro level and the sectoral levels in three main economic sectors, namely the agricultural, industrial, and services sectors in Egypt during the period 1971–2013. I use Johansen cointegration approach, vector error correction model, and Toda and Yamamoto (J Econom 66:225–250, 1995) approach. Empirical findings reveal the existence of a cointegration relationship between the variables at the macro level and the sectoral levels. At the macro level, there is bidirectional causality between real output and electricity consumption. Whereas at the sectoral levels, there exists bidirectional causality between electricity consumption and real output in the services sector and unidirectional causality running from real output in the industrial sector to electricity consumption. However, there is no causal relationship between electricity consumption and real output in the agricultural sector. These results can help policymakers in setting the appropriate electricity conservation policies that enhance economic growth at the macro level and the sectoral levels to prevent any possible adverse effect that may harm economic and social development. Additionally, ensuring a higher level of electricity generation needed for achieving high and sustainable economic growth is vital, where higher electricity generation can be provided through investing in clean technologies and renewable energy resources, such as wind and solar energy.