UiS Business School: A Causal Analysis of Electricity Consumption and Economic Growth in the U.S.

Abstract

The causal relationship between electricity consumption and economic growth has been examined for several economies except for the United States. The literature shows mixed results regarding the nexus between electrical energy consumption and growth that are country-specific. This research is the first study to test the assumption of a causality relationship between demand for electricity and economic growth in the United States. Based on panel data from 48 U.S. continental states, a panel VAR model reveals a bidirectional causal relationship between economic growth and electricity use in the U.S. between 1990 and 2018. A more holistic non-parametric entropy-based causality test for each state indicates the existence of bidirectional causality in three states, electrical energy use-economic growth causality in six states, and economic growth-electrical energy use in nine and no causality in the remaining 30 states.