On the causal dynamics between hydroelectricity consumption and economic growth in Latin America countries

Abstract

The aim of this study is to examine the relationship between hydroelectricity consumption and economic growth in seven Latin America countries including Argentina, Brazil, Chile, Colombia, Ecuador, Peru and Venezuela. The analysis is conducted within a neoclassical model involving capital and labour force, for the period of 1970-2012. We utilize a recently developed cointegration test to investigate the long run relationship in the variables. Having established that the variables are cointegrated, the results indicate long run bidirectional causality between hydroelectricity consumption and economic growth in Argentina and Venezuela. There is evidence for long run unidirectional causality from hydroelectricity consumption to economic growth in Brazil, Chile, Colombia, Ecuador and Peru. The long run coefficients from the regression analyses suggest that hydroelectricity consumption positively affect the economies of these Latin American countries. However, limited evidence of causality between the two variables is found in the short run. The ensuing policy implications of the findings are discussed. © 2015 Elsevier Ltd. All rights reserved.