Energy 233 (2021) 121142

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Energy
journal homepage: www.elsevier.com/locate/energy

Does economic growth respond to electricity consumption

asymmetrically in Bangladesh? The implication for environmental
sustainability
Muhammed Ashiq Villanthenkodath, Mantu Kumar Mahalik*
Department of Humanities and Social Sciences, Indian Institute of Technology Kharagpur, West Bengal, 721302, India

a r t i c l e i n f o a b s t r a c t

Article history: This study is noteworthy because both industrial and residential sectors in Bangladesh use a significant
Received 2 October 2020 amount of electricity for various purposes. Thus, it motivates us to examine the asymmetric impacts of
Received in revised form electricity consumption on economic growth in Bangladesh by using the Non-linear Autoregressive
28 May 2021
Distributed Lag (NARDL) model over the annual data of 1971e2014. After confirming the long-run
Accepted 30 May 2021
asymmetric cointegration between the series, the long-run result indicates that economic growth re-
Available online 8 June 2021
sponds to electricity consumption asymmetrically in Bangladesh. The long-run result also indicates the
dominant effect of negative shocks in electricity consumption over its positive shocks while affecting the
JEL classification:
Q40
economic growth in Bangladesh. Therefore, the policies to tackle the issues of economic growth
047 unsustainability and ecological grief should not underestimate the long-run asymmetric effects of
C32 electricity consumption on economic growth in Bangladesh.
053 © 2021 Elsevier Ltd. All rights reserved.

Keywords:
Electricity consumption
Economic growth
Non-linear ARDL
Bangladesh

1. Introduction energy conservation policy for a small growing economy like

Energy use is just like an umbrella that falls on everybody head.
Every household, business enterprise and economies have tasted
the benefit of energy use in consumption, business and investment
activities. Therefore, energy consumption is central to economic
growth and development as it is an important input in economic
activities. Thus, the link between energy consumption/electricity
consumption and economic growth in the Asian region has been
studied extensively by researchers in the field of energy economics
and policy [1e3]. These studies mainly focus on India and the next
eleven countries while only understanding the nexus between
energy consumption/electricity consumption and economic
growth using the linear model for the best available time-series
data. These studies also bear some policy implications based on
their mixed findings, which cannot be utilized for making effective
Bangladesh. Though there exist few studies for Bangladesh
exploring the dynamic link between energy consumption/elec-
tricity consumption and economic growth [4,5], their findings are
misleading and less reliable for policy formulation and practice in
Bangladesh due to the usage of a linear model on non-linear data
series. However, the non-linear data series are obvious as
Bangladesh economy has experienced a power crisis in recent time
and also made multiple reforms in the electricity sector in order to
revive and boost the economic activities [6]. If this is the case, then

* Corresponding author.
E-mail addresses: ashiqv55@iitkgp.ac.in (M.A. Villanthenkodath), mkm@hss.
iitkgp.ac.in (M.K. Mahalik).

https://doi.org/10.1016/j.energy.2021.121142
0360-5442/© 2021 Elsevier Ltd. All rights reserved.
M.A. Villanthenkodath and M.K. Mahalik
it remains unclear whether asymmetric effects matter more for
sustainable growth and climate change mitigation in long-run
while examining the linkage between electricity consumption1
and economic growth in Bangladesh. Given that our study raises
a research question of whether economic growth in Bangladesh
behaves asymmetrically to the shocks (i.e. positive and negative)
arising from electricity consumption in long-run. With these limi-
tations and to our knowledge, we find no single study focuses on
the asymmetric relationships between electricity consumption and
economic growth for Bangladesh. This is a gap of research moti-
vating us to study the asymmetric effects of electricity use on
economic growth for Bangladesh by using the non-linear autore-
gressive distributed lag (i.e. NARDL) model proposed by Shin et al.
[7]. This is probably the first study for Bangladesh that adds to the
existing energy economics literature relying on updated and
available annual data series of 1971e2014 sourced from the World
Development Indicators (WDI) of the World Bank. This study is also
important because 58% of the rural households in Bangladesh are
energy poor [8]. Moreover, a substantial amount of electricity (i.e.
88.97%) has been used together by both the industrial and resi-
dential sectors in Bangladesh.2
However, it is also critical for this study to consider electricity
consumption which is often considered as an essential energy input
in production and consumption activities [9]. For instance, elec-
tricity consumption is required to run industrial activities and also
assists both labour and capital engaged in the production process.
Hence, the lack of electricity supply hampers not only economic
activities but also lowers overall economic growth [10,11]. This
validates the growth hypothesis, where economic growth is
energy-dependent. One may argue that any energy conservative
policy in Bangladesh is designed or any constraint on energy
availability/increasing energy prices that will hamper economic
growth in long run. As far as the developing countries are con-
cerned, shortage in electricity is basically due to infrastructure
bottlenecks, low-income level, poor institutional quality, and vari-
ations in the environmental standards and policies related to the
use of energy [12,13]. Given that importance, limited studies have
also utilized electricity consumption as one of the primary pre-
dictors to examine its asymmetric effects on economic growth for
other countries [14,15] but not for a small growing economy like
Bangladesh where the industrial and residential sectors jointly
consume almost 89% of total electricity consumption. Meanwhile,
both the industrial and residential sectors are dominant in
Bangladesh as they together contribute 98.82% of the total output
during 2014.3 In terms of GDP per capita in 1990, Bangladesh was
below US$400, whereas in the year 2017, it is about US$1000 and
also secured its secure berth in the status of lower-middle-income
countries World Bank [16]. Moreover, it is important to understand
the trend of economic growth rate (GDP) and electricity
1
For the period 1990 to 2018, average electricity consumed by the industry in
Bangladesh is at a rate of 54.13%, followed by the residential sector (34.84%),
commercial and public services (7.87%), agriculture/forestry (1.30%) and 1.85% for
non-specified (https://www.iea.org/countries/Bangladesh). Moreover, the major
national output producing industrial and energy consuming residential sectors in
Bangladesh utilize a substantial amount of electricity (i.e. 88.97%) in their pro-
duction and consumption activities. Therefore, considering the electricity con-
sumption instead of total energy consumption may be a better choice for building
the policies related to economic growth and environmental sustainability in
Bangladesh.
2 4
https://www.the global economy.com/Bangladesh/household_consumption/
#:~:text ¼ Bangladesh%3A%20Household%20consumption%20as%20%, latest%
20value%20from%20is%20%.
3
https://www.statista.com/statistics/438359/share-of-economic-sectors-in-the-
gdp-in-bangladesh/#:~:text ¼ In%202,019%2C%20the%20share%20of,sector%
20contributed%20about%2052.85%20%.19.
2
Energy 233 (2021) 121142
consumption over the period of time. Though Fig. 1 shows the
upward trend of both series, and also the series are closely related,
causing each other over the period of time. This is also an indication
of bidirectional causality between electricity consumption and
economic growth in Bangladesh, where electricity consumption
causes economic growth up to the year 2000, and economic growth
started influencing the electricity demand after 2000 onwards.4
The World Bank reported that the growth rate in Bangladesh
was
5.48% in 1971 and followed by an increasing growth rate, i.e.
3.48% in 1991.5 It shows an increasing trend of economic growth
rate in Bangladesh. Therefore, businesses, households and econo-
mies as a whole, therefore, reveal a rising demand for electricity in
Bangladesh. Fig. 2 also clearly shows that Bangladesh produces
higher output with less amount of electricity consumption
consumed in comparison with other Asian countries like China,
India, Srilanka and Vietnam. More precisely, to produce 1112 and
1125 USD per capita GDP, India and China required 725 and 547
kWhr electricity, respectively. At the same time, to produce more or
less similar output, Srilanka and Vietnam need electricity at a rate
of 453 and 575 kWh, respectively. On the contrary, Bangladesh
needs only 214 kWh to produce the 1093 USD level of output. It
shows not only an indicator of electricity use efficiency in
Bangladesh in comparison to other Asian countries but also a sign
of a small growing economy in the world.
The International Energy Agency [17] reports that all the sectors’
demand for electricity use in Bangladesh started growing after
2000 onwards (see Fig. 3). But higher demand for electricity is
mainly coming from the industrial and residential sectors. These
two sectors use 2880.0ktoe and 1747.0ktoe of electricity which is
much higher than commercial and public service and agriculture
sectors in Bangladesh. This shows that both industry and residen-
tial sectors in Bangladesh are highly electricity-dependent in the
long run. From this, one can also infer that any negative shocks in
the electricity generation and distribution resulted in an adverse
effect on the growth of industrial and residential sectors of the
Bangladesh economy. In light of this, one can also expect an
asymmetric effect of electricity use on economic growth. This may
be true because any rise in electricity price will become expensive
for business firms and consumers of the developing economy. As a
result, both consumers and business firms will demand less elec-
tricity for their consumption and production activities. The falling
business and consumption activities will lower the growth of a
developing economy like Bangladesh and becomes vice-versa if the
price of electricity becomes low. We also observe from our under-
standing of the existing literature that many studies explored the
linear relationship between electricity use and economic growth,
but the possible non-linear relationship between the series is yet to
be explored empirically for the Bangladesh economy.
It is, therefore, essential for this study to carefully examine the
linkage between electricity consumption and economic growth,
taking into consideration of the asymmetric effects of electricity
use on economic growth in Bangladesh. This is undoubtedly a novel
contribution to the literature of energy economics and policy. The
rest of the paper is designed as follows. Section 2 presents a survey
of the existing studies. Section 3 discusses the data and method-
ology. Empirical results are discussed in section 4, followed by the
key discussion of conclusion and policy implications in section 5.
We are also thankful to one of the reviewers for suggesting us to include the
growth rate of economic growth and electricity consumption which is shown in
Fig. 1. Similarly, another reviewer also suggested us to provide the justification for
choosing the electricity consumption over total primary energy consumption in our
analysis (please see the footnote 1).
5
https://databank.worldbank.org/source/world-development-indicators.
M.A. Villanthenkodath and M.K. Mahalik Energy 233 (2021) 121142

Fig. 1. Average growth rate of gross domestic product (GDP) and electricity consumption (ELEC). Source: World Development Indicators, The World Bank.

Fig. 2. Energy intensity in Asian Countries. Source: Ministry of Power, Energy and Mineral Resources, Government of The People's Republic of Bangladesh.

Fig. 3. Sectoral electricity consumption in Bangladesh. Source: IEA, World Energy Balances 2019.

2. Literature survey and economic growth are enormous in the field of energy eco-
nomics and policy [19e30]. But there exists no strong consensus on
Based on the seminal work of Kraft & Kraft [18]; the studies that what the relationship should be. The unclear relationship between
empirically understand the nexus between energy consumption energy consumption and economic growth does not help

3
M.A. Villanthenkodath and M.K. Mahalik
policymakers to reach effective policy-making for sustainable
economic growth and energy conservation. The lack of effective
economic growth and energy conservation policies not only affects
the growing capacity of an economy but also hinders a crucial en-
ergy strategy for better environmental quality. Therefore, under-
standing the link between energy consumption and economic
growth is crucial from the wider inclusive growth, energy efficiency
and climate justice policy perspectives. However, such importance
has led to the generation of four relevant hypotheses in the field of
energy economics. These are growth, conservation, feedback, and
neutrality hypotheses. First, the growth hypothesis occurs when
energy use is the key to economic growth [31,32]. This implies that
energy use helps countries to grow while utilizing energy in both
consumption and production activities. This further implies that no
countries can proceed to grow without the usage of energy in
economic activities. This is because the economic structures of
these countries are energy-dependent. The growth hypothesis
further postulates that building energy capacity is essential for the
higher economic growth rate of a country, which is also crucial for
the reduction of poverty and unemployment levels. As far as
environmental quality is concerned, the countries should grow
with building the greater capacity of clean/renewable energy (i.e.
solar, wind) and using non-renewable energy (i.e. coal, oil and
natural gas, hereafter fossil fuels) as ‘transitional’ in the total pri-
mary energy mix. Therefore, the policymakers may design an
effective energy conservation policy keeping the implications of
economic growth and environmental quality in mind. Second, the
conservation hypothesis also occurs when economic growth is the
driving force of higher energy demand [33e35]. This implies that
the economic activities of a country are energy independent,
indicating countries' growth without energy demand. Any energy
conservation policy that a country aims to implement for the pro-
motion of environmental quality will not hinder the perspective of
higher economic growth. Third, the feedback hypothesis occurs
when energy consumption and economic growth are mutually
dependent on each other [31,32,36]. This implies that the higher is
the energy consumption, the higher will be economic growth and
vice-versa. This feedback hypothesis is the product of both growth
and conservation hypotheses which may benefit countries that
follow this type of causal relationship in their higher economic
growth and energy efficiency policies-making. Fourth, the
neutrality hypothesis occurs when a decoupling relationship be-
tween energy consumption and economic growth is reported
[32,36]. This implies that energy is consumed, but it does not in-
fluence economic growth; similarly, the economic output is
generated without affecting the demand for energy. For example,
the subsistence farmers in developing countries mainly depend on
natural events for producing agricultural output, rather than
focusing on energy-consuming activities (i.e. mining and
manufacturing).
Moreover, Table 1 shows the summary of existing studies
exploring the linkage between energy consumption and economic
growth and reported mixed causal findings. However, in the case of
Bangladesh, Alam et al. [57]; using the cointegration technique,
found a unidirectional causality from energy consumption to eco-
nomic growth. Rahman and Kashem [58]; using annual data from
1972 to 2011 with the help of ARDL Bounds Testing and vector error
correction modelling, found that the energy consumption via
raising economic activities degrades the environmental quality in
Bangladesh. Shahbaz et al. [2]; employing annual data of
1972e2013 with the support of a novel time-varying Granger
causality test, found that economic growth enhances CO2 emissions
via increasing energy consumption in Bangladesh. Akhmat and
Zaman [59]; relaying the Bootstrap Granger causality test for a
panel sample of South Asian countries, found that both oil and coal
4
Energy 233 (2021) 121142
use Granger cause economic growth in Bangladesh. Similarly, Das
et al. [60]; applying the Johansen cointegration technique, found
that economic growth causes natural gas only. After reviewing
academic studies for Bangladesh, we find very few studies pro-
ducing mixed causal findings.
Table 2 also shows a few existing studies on the nexus between
electricity use and economic growth and reported mixed findings.
Few studies find the feedback relationships between electricity
consumption and economic growth [46,66e69,72]. In addition, few
studies exist for Bangladesh while examining the nexus between
electricity consumption and economic growth and find the mixed
findings [73e77]. For example, Mozumder & Marathe [75] exam-
ined the causal link between energy use and economic growth for
Bangladesh and confirmed that economic growth is the driving
cause of electricity use. Hossain and Badr [73] found that biomass
has a huge potential for electricity generation as compared to other
sources in order to meet the local energy demand of Bangladesh.
Masuduzzaman [74] observed a one-way causality is running from
electricity consumption to economic growth in Bangladesh. Sarker
and Alam [76] investigated the relationship between economic
growth and electricity generation in the context of Bangladesh and
found the unidirectional causality from electricity generation to
economic growth. Shahbaz et al. [77] evaluated the causal link
between electricity use and environmental quality for Bangladesh
and found that excessive electricity use as a result of economic
growth leads to environmental degradation. The literature survey
shows that there is no single study exploring the asymmetric ef-
fects of economic growth in responding to electricity consumption
in a small growing economy like Bangladesh.
3. Data description and methodology
3.1. Data description
The study employs the annual data from 1971 to 2014 based on
its availability from the World Development Indicators (WDI, 2019)
of the World Bank. The main variables utilized for this empirical
study consist of per capita electricity use measured in kWh, and real
GDP per capita is used for measuring economic growth. All the
employed variables are converted to the natural logarithms to
overcome the heterogeneity in the measurement unit and to get
desirable estimates [78,79].
3.2. Methodology
In the current literature, the ARDL cointegration model is often
utilized to understand the linear relationship between electricity
consumption and economic growth in the long run [32,67,80,81].
However, the linear ARDL model is also unable to incorporate the
asymmetric relationships between electricity consumption and
economic growth in Bangladesh. With this limitation, this study
uses non-linear ARDL (NARDL) technique proposed by Shin et al. [7]
to examine the asymmetric nexus between electricity use and
economic growth in Bangladesh [82e86]. Moreover, it is applicable
to the small sample size case. However, the NARDL method is also
required to test the unit root property of level variables because the
method is not applicable in the case of the variables with integrated
of order 2, i.e. I (2). Therefore, both unit root tests [95,101] are used
to confirm the unit root property of the series.
We specify the model in Equation (1) for unveiling the non-
linear nexus between electricity consumption (ELEC) and eco-
nomic growth (GDP) in Bangladesh by following the study of Shin
et al. [7].
M.A. Villanthenkodath and M.K. Mahalik Energy 233 (2021) 121142

Table 1
Summary literature of energy consumption and economic growth nexus.

Author(s)/year Region Methodology Findings

Akadiri et al. [37] Iraq ARDL EG/EC

Toda-Yamamoto Causality
Apergis and Payne [38] Commonwealth of Independent panel cointegration and EC/EG
States causality
Apergis and Payne [39] 13 countries in Eurasia panel cointegration and REC4EG
causality
Bhattacharya et al. [40] 32 top REC counties Panel Cointegration and REC positively affects EG
causality REC/EG
Destek and Aslan [41] 17emerging economies Bootstrap panel causality REC/EG ePeru
REC4EG for Greece and South Korea
EG/REC for Colombia and Thailand
NEC/EG for China, Colombia, Mexico and the Philippines
NEC4EG for Turkey
NEC/EG for Egypt, Peru and Portugal
Eggoh et al. [42] African countries panel cointegration and EC4EG- Middle for income countries
causality
Fuinhas and Marques Portugal, Italy, Greece, Spain and Panel ARDL and causality EC4EG
[43] Turkey
Gozgor et al. [44] 29 OECD Countries Panel ARDL REC & NEC positively affect EG
Panel quantile regression
Ito [45] 42 developed countries GMM NRC negatively affects EG
REC positively affects EG
Odhiambo [46] Tanzania ARDL and causality EC/EG
Ouedraogo [47] 15African countries panel cointegration and EC/EG in long run
causality EG/EC in short run
Ozcan and Ozturk [48] 17 emerging countries Bootstrap panel causality REC does not cause EG in 16 countries
EG/REC - Poland
[49] 51 countries panel cointegration and EG/EC for Low income counties
causality EC4EG for Middle-income countries
Salahuddin and Gow Qatar ARDL EC does not cause EG
[50] Toda-Yamamoto Causality
Shahbaz et al. [51] Pakistan ARDL bounds testing and VECM REC4EG
NEC4EG
Tang et al. [52] Vietnam Cointegration and Granger EC positively affects EG
causality EC/EG
Tsani [53] Greece Toda-Yamamoto Causality EC/EG
Warr and Ayres [54] USA Cointegration and causality EC/EG
Wolde-Rufael [55] seventeen African countries variance decomposition Egypt, Ivory Coast, Morocco, Nigeria, Senegal, Sudan, Tunisia and Zambia-
Granger causality EG/EC
Algeria, Benin and South Africa- EC/EG
Gabon, Ghana, Togo and Zimbabwe EC4EG
Cameroon and Keny-EC Ҳ EG
Yildirim et al. [56] USA bootstrap-corrected causality Biomass-waste-derived EC/EG
test

Note: the symbols / and 4 indicates unidirectional causality and bi-directional causality. EC, EG, REC and NEC shows the energy consumption, economic growth, renewable
energy consumption and non-renewable energy consumption. REC countries stand for the Regional Economics Communities under the African Union. OECD represents the
Organization for Economic Co-operation and Development.
Source: Authors' compilation

LnGDPt ¼ t0 þ t1 LnELECtþ þ t2 LnELECt
þ mt (1) X

p X
p
DLnGDPt ¼ r0 þ r1 DLnGDPt
k þ r2 LnELECtþ
Here LnGDPt stands for the natural logarithm of the real GDP per k¼0 k¼0
capita at time t, LnELECtþ and LnELECt
indicate the partial sum- X
p
mation of the positive and negative shocks in electricity con- þ r3 LnELECt
þ f0 LnGDPt
1 þ f1 LnELECt
1
þ

þ f2 LnELECt
1
sumption, respectively. The specified vector t ¼ [t0 , t1 t2 ] is the k¼0
unknown long-run parameters that need to be estimated. Partial þ mt
sum formulation of electricity consumption can be represented in
(4)
Equations (2) and (3).

X
t X
t   X
p X
p
LnELECtþ ¼ DLnELECjþ ¼ max DLnELECjþ ; 0 (2) DLnGDPt ¼ r0 þ r1 DLnGDPt
k þ r2 LnELECtþ
j¼1 j¼1 k¼0 k¼0
X
p

  þ r3 LnELECt
þ g0 ECTt
1 þ mt (5)

X
t X
t
LnELECt
¼ DLnELECj
¼ max DLnELECj
; 0 (3) k¼0

j¼1 j¼1
where D indicates the operator of difference, k-is the number of lag,
Now we specify the non-linear ARDL Equations (4) and (5) to get r1 /r3 coefficients of the short-run equations specified in our
both the long-run and short-run results. model. The long-term coefficient can be represented in our model
5
M.A. Villanthenkodath and M.K. Mahalik Energy 233 (2021) 121142

Table 2
Summary literature of electricity consumption and economic growth nexus.

Author(s)/year Region(s) Methodology Findings

Abosedra et al. [61] Lebanon Causality test ELC/EG

Balcilar et al. [62] Pakistan Maki cointegration EG/ELC
Toda-Yamamoto Causality
Hamdi et al. [63] Bahrain Cointegration and Granger Causality ELC/EG
Kirikkaleli et al. [64] OECD (35 countries) Panel causality EG/ELC
Kyophilavong et al. [65] Laos ARDL and Granger causality EG/ELC
Lin & Wang [66] China regions Panel causality ELC4EG
Nathaniel and Bekun [9] Nigeria Cointegration and causality ELC Ҳ EG in short run
ELC4EG in the long run
Odhiambo [67] South Africa Cointegration and causality ELC4EG
Osman et al. [68] GCC Panel cointegration and causality ELC 4 EG
Saint Akadiri et al. [69] Turkey ARDL ELC4EG
Toda-Yamamoto causality
Salahuddin and Alam [70] Australia Cointegration and Granger Causality EG/ELC
Samu et al. [71] Zimbabwe Maki cointegration ELC positively affects EG
Toda-Yamamoto Causality ELC/EG
Solarin et al. [72] Angola Cointegration and Granger Causality ELC 4 EG

Note the symbols /, 4 and Ҳ indicates unidirectional causality, bi-directional causality and no causality, respectively. ELC and EG represent electricity consumption and
economic growth, respectively. OECD and GCC represents the Organization for Economic Co-operation and Development and Gulf Cooperation Council.
Source: Authors compilation

like this f0 /f2 and g0 is the coefficient of the error correction

term, and m is the error term with usual assumptions in our model.
By utilizing Equation (4), we can extract the F statistics for testing
the null hypothesis, H0 ¼ f0 ¼ f1 ¼ f2 ¼ 0 against the alternative X
k X
dmax
lnGDPt ¼ m1;t þ a1i lnGDPt
i þ a2i lnGDPt
i
hypothesis H1 ¼ f0 sf1 s f2 s 0. Pesaran et al. [87] argued that in i¼1 i¼kþ1
the case of upper bound and lower bound, critical values fall below
our estimated F-statistic, or the estimated value of F-statistic is X
k X
dmax X
k
þ þ

þ a3i lnELECt
i þ a4i lnELECt
i þ a5i lnELECt
i
greater than the upper critical value. Then we have to take the i¼1 i¼kþ1 i¼1
decision favouring the alternative hypothesis. After estimating
Equations (4) and (5), we have estimated the short-run asymmetric
X
dmax


þ a6i lnELECt
i þ ε1t
effect (see Equation (6)) and long-run asymmetric effect (see i¼kþ1
Equation (7)) of electricity use on economic growth by using the
(10)
Wald test.

rþ
2 r
X
k X
dmax
¼ 3 (6)
r1 r1 lnELECtþ ¼ m2;t þ g1i lnGDPt
i þ g2i lnGDPt
i
i¼1 i¼kþ1

X
k X
dmax X
k
þ þ

þ g3i lnELECt
i þ g4i lnELECt
i þ g5i lnELECt
i
fþ
1 f

2
¼ (7) i¼1 i¼kþ1 i¼1
r1 r1 X
dmax


Moving ahead, we have further estimated the dynamic multi- þ g6i lnELECt
i þ ε2t
i¼kþ1
pliers of 1% change in electricity consumption either ELECtþ or
ELECt
. It can be represented in Equations (8) and (9). (11)

X
b
vlnGDPtþj
Kbþ ¼ (8) X
k X
dmax
þ
LnELECt
1 lnELECt
¼ m3;t þ f1i lnGDPt
i þ f2i lnGDPt
i
j¼0
i¼1 i¼kþ1

X
k X
dmax X
k
þ þ

þ f3i lnELECt
i þ f4i lnELECt
i þ f5i lnELECt
i
X
b
vlnGDPtþj i¼1 i¼kþ1 i¼1
Kb
¼
(9) X
dmax
LnELECt
1

j¼0 þ f6i lnELECt
i þ ε3t
i¼kþ1
Here, b tends to infinity, in ours. Kbþ /tþ
1 and Kb /t2



(12)
Taking intuitions from Hatemi J [88]; we have examined the
asymmetric causality between electricity use and economic growth Here mi;t indicates the deterministic component. The lag order
in Bangladesh using the augmented vector autoregression (VAR) determination is based on the unit root test property. The null
approach developed by Toda and Yamamoto [89]. It can be repre- hypothesis of no causality is rejected when the probability value is
sented, as shown in Equations (10)e(12). less than 10% during the estimation process.
6
M.A. Villanthenkodath and M.K. Mahalik Energy 233 (2021) 121142

4. Results discussion the specification of our non-linear ARDL model. To identify the
appropriate criteria, we have run our model with all information
4.1. Descriptive statistics criteria to get the desired outcome. We found that the model sat-
isfies all the properties with lag three.
Table 3 describes the summary statistics of our variables of in-
terest. The mean and median values of both electricity consump- 4.4. NARDL results
tion and GDP are almost close. The mean and median values of
electricity consumption are 4.12 and 4.15, respectively, whereas the This study aims to understand the non-linear impact of elec-
mean and median values for GDP are 24.64 and 24.58, respectively. tricity consumption on economic growth in Bangladesh. The esti-
The skewness of the variables shows that both electricity con- mated bound test results of the non-linear ARDL model is reported
sumption and GDP are positively skewed. The kurtosis statistics in Table 7. The cointegration is confirmed at NARDL (3,3,3) since the
reveals that none of the variables in our consideration is either estimated value falls above both upper bound and lower bound
mesokurtic or leptokurtic; in other words, our variables are platy- values.
kurtic. The Jarque-Bera (JB) statistics with insignificant p-values Table 8 represents the estimated long-run and short-run results
assures that variables are normally distributed as it rejects an of the non-linear ARDL model. We observe the statistically signif-
alternative hypothesis (i.e. variables are not normal). icant asymmetric effects of electricity consumption on economic
Fig. 4 depicts the annual trend of the variables over the period of growth in both the short-run and long run. Based on the asym-
1971e2014. It is evident that both economic growth (LNGDP) and metric long-run results, a 1% increase in electricity consumption
electricity consumption (LNELEC) reveal an increasing trend over increases economic growth by 0.81% (LNELECþ ¼ 0.816), whereas a
the period of time. This is the sign of non-stationary variables. 1% decrease in electricity consumption also decreases GDP by 2.12%
Therefore, it is essential for this study to check the non-stationary (LNELEC
¼ 2.121). This clearly indicates that economic growth
property of these variables. Accordingly, an appropriate time se- responds to electricity consumption asymmetrically in Bangladesh.
ries model can be employed for the empirical purpose. The results imply that negative shocks in electricity use adversely
affect economic growth more than positive shocks. Based on the
4.2. Unit root test results dominant effect of negative shocks in electricity use on economic
growth for Bangladesh in the long run, it clearly implies that any
As part of checking the unit root property of time series vari- imbalances in the supply of electricity (i.e. negative shocks in
ables before applying any model into the growth equation, there- electricity use) will hamper the use of electricity in economic ac-
fore both ADF and PP unit root tests are used. Table 4 shows that the tivities of Bangladesh because it is highly electricity-dependent. No
variables are non-stationary at the level and stationary after first- consumption and production activities in Bangladesh are possible
differencing. In such a case, we suggest no need for second differ- without the timely help of electricity. It further shows that elec-
encing for the series to get stationary. This further allows us to use tricity supply is essential to a transitional economy like Bangladesh.
the NARDL model for estimating long-run asymmetric relation- As far as positive shocks in electricity use are concerned, it drives
ships between the series. the economic growth of Bangladesh in the long run. It indicates that
if business firms in Bangladesh access more electricity timely at
4.3. BDS technique affordable prices, they may continue to extend the working hours
and eventually, the output will be increased in the long run.
We have employed the well-known BDS independence test Moreover, the long-run Wald test coefficient also confirms the
proposed by Ref. [90] to check non-linearity in the data series as existence of asymmetry in our model.
robustness checking. Table 5 reveals that the estimated variables Regarding the short-run results, a 1% positive change in elec-
are not distributed identically and independently. It shows that tricity use leads to a decrease in economic growth by
0.09%
non-linearity is present in the data series. In such a case, it is (LNELECþ(-2) ¼
0.098). It may be due to any positive shocks in
necessary for this study to use the NARDL model for understanding electricity use will have the lag effect that will bring adverse effect
the nexus between electricity use and economic growth in on economic growth in the short run. This implies that even if
Bangladesh. In order to estimate the non-linear ARDL model, we electricity is used in Bangladesh, it will reduce economic growth in
need to decompose our explanatory variable, i.e. electricity use, the short run. This is because electricity is not used efficiently in the
into both positive and negative values. Fig. 5 shows the decom- production process. An 1% decrease in electricity use reduces eco-
posed positive and negative values of electricity consumption over nomic growth by
0.31% (LNELEC
(-1) ¼
0.313). It shows that
time. electricity use does not drive economic growth in the short run.
In Table 6, we delineate the various lag length criteria used for This is possible because if any economy intends to increase eco-
nomic activities, it cannot do it if electricity availability is distorted
in the electricity market or if it is not available at affordable prices
Table 3 in the short run. For the short run, the Wald test provides support
Summary statistics. against the short-run symmetry with statistical significance in our
Variables LNELEC LNGDP specified model. Furthermore, the coefficient of error correction
Mean 4.123 24.641
term in our model found that
0.071. The error correction term is
Median 4.154 24.581 also statistically significant at a 1% level, supporting the cointe-
Maximum 5.769 25.714 gration among the specified variables. The error correction term
Minimum 2.366 23.79 means that economic growth re-adjusts to the long-run equilib-
St.Dev 1.007 0.569
rium at a speed of 7% each year in the presence of electricity con-
Skewness 0.013 0.27
Kurtosis 1.808 1.896 sumption. The coefficient determination of the specified model is
JB 2.603 2.766 found as reasonable (R2 ¼ 0.71). This shows the overall goodness of
P-value 0.271 0.25 fit of the model as electricity use explains economic growth by 71%,
N 44 44 and the rest variation of economic growth may be explained by the
Source: Authors' estimation. remaining factors embodied in the error term. All the diagnostics
7
M.A. Villanthenkodath and M.K. Mahalik Energy 233 (2021) 121142

Fig. 4. Trend lots of the series. Source: Authors' plot.

Table 4 Table 6
Unit root tests. Lag length selection.

Level First difference Lag LogL LR FPE AIC SC HQ

ADF 0 82.49 NA 3.41E-06
4.08
3.95
4.03

1 292.20 376.39 1.16E-10
14.37
13.85*
14.19
Variables No trend With trend No trend With trend 2 307.68 25.41* 8.37e-11*
14.70
13.81
14.38*
LNGDP 3.234 0.502
7.570*
12.670* I(1) 3 316.96 13.80 8.45E-11
14.71*
13.44
14.26
LNELEC 0.129
3.134 5.172*
5.115* I(1) 4 323.14 8.24 1.02E-10
14.57
12.91
13.97
PP Note: * indicates lag order selected by the criterionFPE: Final prediction error AIC:
LNGDP 3.256
4.04 12.284*
18.106* I(1) Akaike information criterion SC: Schwarz information criterion HQ: Hannan-Quinn
LNELEC
0.628
4.102
7.482*
7.450* I(1) information criterion.
Source: Authors' estimation
Note: * indicates the 1% level of significance.
Source: Authors' estimation.

Table 7
Bounds test results.
Table 5
BDS non-linearity test results. (Model) (Lag) F-statistics

Variables LNGDP LNELEC (LNGDP/LNELECþ, LNELEC-) (3 3 3) 7.247* Critical values

LB UB
Dimension2 0.18825* 0.192373* 5% 3.1 3.87
Dimension 3 0.315306* 0.323167* 2.5% 3.55 4.38
Dimension 4 0.401043* 0.415387* 1% 4.13 5
Dimension 5 0.461113* 0.479362*
Dimension 6 0.503429* 0.525327* Note: LB and UB means the lower bound and upper bound. * indicates the 1% level of
significance.
Note: * indicates the 1% level of significance. Source: Authors' estimation.
Source: Authors' computation.

Fig. 5. Decomposed series of electricity consumption. Source: Authors' plot from computation.

tests also confirm that the computed model is unbiased. observed in Bangladesh. From the black line in Fig. 6, it is further
The dynamic asymmetry curve in Fig. 6 also demonstrates the evidence that a 1% increase in electricity consumption does not
dynamic multipliers where both shocks in electricity use are have a huge impact on economic growth in Bangladesh. The

8
M.A. Villanthenkodath and M.K. Mahalik Energy 233 (2021) 121142

Table 8
Estimated long-run and short-run NARDL results.

Long-run results

Variable Coefficients t - statistics p-value

þ
LNELEC 0.816* 4.517 0.0001
LNELEC- 2.121** 1.965 0.05
Constant 24.21* 42.39 0.000
Short-run results
LNGDP(-1)
0.327** 2.391 0.023
LNELECþ(-2)
0.098*
3.331 0.002
LNELEC
(-1)
0.313*
2.785 0.009
Constant 1.719 1.365 0.182
ECT(-1)
0.071*
5.665 0.000
R2 0.71 χ2JB 1.247[0.536]
R2a 0.64 χ2ARCH 0.652[0.523]
F-Statistics 6746.68[0.000] χ2RESET 1.294[0.206]
Log likelihood 126.201 χ2LM 1.425[0.245]
Wald-test for Asymmetry
Short run 13.68 [0.0000]
Long run 62.27 [0.0000]

Note: * and ** stands for the statistical significance at 1% and 5% respectively. χ2JB, χ2ARCH, χ2RESET and χ2LM indicates JarqueeBera normality test, ARCH test for hetero-
scedasticity, Ramsey reset test for model specification and LM test for serial correlation respectively. Wald test signifies the asymmetry. Square bracket [] shows the probability
values.
Source: Authors' estimation.

causality between the series. The results reported in Table 9

Fig. 6. Dynamic multiplier. Source: Authors' plot from computation.
negative impact coming from electricity consumption causes a
huge loss for economic growth, which is reflected in the dotted
black line of Fig. 6. The overall result deriving from the asymmetry
plot is that shocks in electricity consumption play an important on
economic growth in Bangladesh. Hence the policymakers in a small
growing economy like Bangladesh need to be careful while
formulating the energy conservation and climate policies.
4.5. Stability analysis
Both cumulative sum (CUSUM) and cumulative sum of square
(CUSUM) proposed by Brown et al. [91] are used to judge the sta-
bility of the NARDL model. Fig. 7 reveals that the estimated blue line
falls within the upper and lower bounds line, confirming that both
tests are significant at a 5% level. This further shows that our esti-
mated NARDL model satisfies the stability of the parameters.
confirm a bidirectional causality between positive shocks in elec-
tricity use and economic growth in Bangladesh. It implies that any
change coming from positive shocks in electricity consumption will
also bring a change in the economic growth of Bangladesh and vice-
versa. This is an indicative of causing each other in Bangladesh. For
instance, rising economic growth is a positive shock to the elec-
tricity market in Bangladesh. This is because rising economic
growth implies an increasing business and consumption demand of
electricity. If the Bangladesh economy wishes to grow, then both
business firms and consumers will increase their electricity de-
mand. As a result, electricity producers in Bangladesh will also
generate more electricity because of increasing the demand for
electricity arising in the electricity market. This bidirectional cau-
sality helps the Bangladesh economy to grow and stimulates the
demand for and supply of the electricity market. Moreover, the
feedback relationships between positive shocks in electricity use
and economic growth supported the bidirectional hypothesis. This
is finding is consistent with the studies that found feedback hy-
pothesis [42,43,56,66e68,72]. The finding also diverges from the
recent study of Salahuddin & Gow [50]; who supported the
neutrality hypothesis.
However, a unidirectional causality is also running from eco-
nomic growth to negative shocks in electricity consumption. It
implies that any change in the economic growth of Bangladesh will
create negative shocks in electricity use. This indicates that a
decline in economic growth will reduce the demand for electricity
in Bangladesh. Hence, the reduction of electricity demand becomes
a key issue for the electricity producers in Bangladesh. This is
because lessor demand for electricity will also reduce the genera-
tion of electricity in Bangladesh. We further examine the VAR
model diagnostics by using the BreuschePaganeGodfrey test for
heteroscedasticity, JarqueeBera residual normality test and serial
correlation LM test and found the stability of the asymmetric
causality model.

4.6. Causality test

In econometric literature, Toda and Yamamoto [89] argued that
the maximum two lags for testing the causality between the series
should be chosen. Since the variables are stationary at their first
difference, we fix the lag at one for specifying the asymmetric
9
5. Conclusion and policy implications
This study examines the asymmetric effects of electricity con-
sumption on economic growth in Bangladesh by using the NARDL
model over the period of 1971e2014. The long-run result reveals
M.A. Villanthenkodath and M.K. Mahalik
Fig. 7. NARDL CUSUM and CUSUMsq. Source: Authors' plot from computation.
Table 9
Asymmetric causality results.
GDP
GDP e 16.51[0.00]
ELECþ 5.64[0.05]
ELEC- 0.87[0.66]
VAR Diagnostics
χ2SC(9) ¼ 12.64[0.189] χ2HC(54) ¼ 102.93[0.0001]
Note: Degrees of freedom in (.). p-Value in [.].
Source: Authors' estimation.
the asymmetric responses of economic growth with electricity
consumption in Bangladesh, where the negative shocks arising
from electricity use have an adverse impact on economic growth
than the positive shocks in electricity consumption. The findings
also indicate a bidirectional causality between positive shocks in
electricity use and economic growth in Bangladesh.
The findings clearly indicate that the positive shocks in elec-
tricity use have a positive impact on economic growth in long run.
The use of electricity may support economic growth in the long run,
but the massive electricity generation for mitigating the rising
energy demand of economic activities could also cause loss of
biodiversity in the ecosystem. This finding urges the government of
Bangladesh to look at the sources of electricity generation while
promoting higher economic growth. Otherwise, the excessive
electricity generation in Bangladesh with fossil fuels’ help may
trash the beauty of the natural environment in long run.
The study also finds that the negative shocks in electricity use
also have an adverse effect on economic growth in Bangladesh. This
implies that the Bangladesh economy is highly electricity con-
sumption dependent, and therefore it is adversely impacted by the
negative shocks in electricity usage. Thus, this finding bears some
important policies for sustainable growth and climate justice in
Bangladesh. We suggest that without fundamental shifts in elec-
tricity production, it is again difficult to have a lasting reduction in
carbon emissions for a small growing economy, Bangladesh. Hence,
Bangladesh can continue to have a higher economic growth rate
with adequate usage of electricity generated massively from
renewable energy sources (i.e. hydropower, solar, and wind). The
renewable energy sources, while building the capacity of electricity,
will benefit the natural environment in Bangladesh.
Similarly, building the capacity of electricity from using
10
Energy 233 (2021) 121142
ELECþ ELEC-
5.17(0.07)
e 7.55(0.02)
1.21[0.54] e
χ2N(2) ¼ 22.88[0.001]
renewable energy sources requires a considerable amount of
financial investment from a small growing economy like
Bangladesh in long run. In such circumstance, it is also important to
have the strong coordination of public-private partnerships in the
electricity sector of Bangladesh that can help to enjoy the long-run
process of growth maximization and de-carbonization. Finally,
these renewable energy projects would help to reduce energy
poverty and stimulate economic growth for Bangladesh while
protecting the natural assets in long run. Moreover, more country-
specific studies would help in improving the socio-economic con-
ditions and environmental health of developing countries to catch
up with the developed nations in the near future.
Our findings further confirm the feedback causality between
positive shocks in electricity consumption and economic growth.
This shows that positive shocks in electricity consumption and
economic growth influence each other. Therefore, policies for
economic growth and electricity consumption have to be formu-
lated simultaneously to enhance the sustainability of economic
growth in Bangladesh through the efficient use of electricity. An
elegant electricity policy needs to be developed in Bangladesh to
foster economic growth by protecting the ecosystem. Preserving
the ecosystem becomes possible if electricity production is made
with the help of renewable energy sources. Hence, policymakers
and government in Bangladesh should focus on ecologically sus-
tainable methods of electricity generation to reduce the ecological
footprint in the atmosphere. As a result, it will sustain the balance
of ecosystem with maintaining an upward economic growth in
long-run.
On a final note, in line with the recent studies of Villanthenko-
dath and Mahalik [79] and Mahalik et al. [78]; we suggest a fertile
gap of research for the researchers working in the field of energy
M.A. Villanthenkodath and M.K. Mahalik
economics and policy where they can empirically examine the
linear and non-linear effects of technological innovation, total
foreign aid and energy aid inflows on economic growth and envi-
ronmental health sustainability in Bangladesh within a time series
framework.
Authors’ contribution statement
Muhammed Ashiq Villanthenkodath: Conceptualization, Data
curation, Software, Investigation, Writing e original draft, Visuali-
zation, Mantu Kumar Mahalik: Introduction, Reviewing, Conclu-
sion, Policy Implications, Editing Overall Draft and Restructuring,
Supervision
Declaration of competing interest
The authors declare that there exists no conflict of interest.
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