Electricity Consumption-GDP Nexus in Bahrain: A Time Series Analysis

Abstract

This study aims to explore the nexus between electricity consumption and economic growth in Bahrain over theperiod 1975-2010. This study uses two different test methods to test for causality, namely, the error correctionmodel and Toda-Yamamoto (1995) procedure. The results based on both approaches consistently show aunidirectional long-run causality from economic growth to electricity consumption. Thus, the results support theneutrality hypothesis of electricity consumption with respect to economic growth. The findings have practicalpolicy implications for decision makers in the area of macroeconomic planning; the absent of causality runningfrom electricity consumption to economic growth implies that electricity demand side management measures canbe adopted to reduce the wastage of electricity which would not affect future economic growth in Bahrain.Keywords: Electricity consumption; economic growth; time series; Bahrain, causality; unit root; cointegration;ECM; Toda-Yamamoto.