Nonlinear Dynamic Impact of Electricity Consumption on Economic Growth in Odisha: A Disaggregated Causality Analysis

Abstract

The paper examines the causal link between electricity consumption and Odisha’s economic growth using linear and nonlinear causality tests in annual data from 1981 to 2020. The study uses both linear and non-linear causality on aggregate and sectoral data. Based on the empirical analysis, the study finds that electricity consumption strongly granger causes state’s economic growth. Further, sectoral-level analysis shows that electricity consumption exhibits a strong causal relationship with the primary, secondary, and tertiary sectors. This finding is consistent for both linear and non-linear granger causality tests. Moreover, the estimation of long-run elasticity reveals that both secondary and tertiary sectors have greater than unity elasticity whereas the primary sector has less than unity elasticity. The rolling elasticity shows that elasticity is increasing over time and across the sectors, barring the tertiary sector. More mechanized activities in the primary sector will increase the consumption of electricity and more value addition to the economic growth of the state. The policy intervention would be to reduce electricity losses (leakages) as well as increase the production of electricity to increase economic growth. Considering the greater role of electricity in the state’s economic progress, intervention from both the state government and the Odisha Electricity Regulatory Commission, the regulatory body of the state, is very much essential.