Causality study between electricity consumption and economic growth in Lebanon

Abstract

This article studies the causal relationship between electricity consumption and economic growth in Lebanon over the period 1971-2012. This relationship is examined using cointegration and Granger causality tests. The results of the estimates indicate that economic growth and electricity consumption in Lebanon are not cointegrated and that there is no causal relationship between variables according to Granger’s tests. However, a unidirectional causality is detected in the post-war period (1990-2012), ranging from electricity consumption to economic growth. The results of this research prove strongly, and with an econometric approach, that electricity consumption was the fundamental sourceof economic growth after the civil war in Lebanon, which explains the appearance of this causal relationship. In addition, the most relevant implication of this study is that mitigation of current power generation shortages should be a national priority, given its potential positive effect on the Lebanese economy.