Abstract:
This paper explores the long-run and causal relationships between hydroelectricity
consumption and economic growth for a panel of the 10 largest hydroelectricity
consuming countries over the period 1965 to 2012. The countries include Brazil, Canada,
China, France, India, Japan, Norway, Sweden, Turkey and the U.S.A. Using the Bai and
Perron (2003) tests for cointegration, the results indicate that real GDP per capita and
hydroelectricity consumption per capita appear to be cointegrated around a broken
intercept. Granger causality results from a nonlinear panel smooth transition vector error
correction model suggest different results depending on the regimes, which we identified
based on structural break tests. The test identified three breaks at 1988, 2000 and 2009.
For the pre-1988 period, there is evidence of unidirectional causality running from real
GDP per capita to hydroelectricity per capita in both the short- and long-run. Over the
post-1988 period, there exists evidence of bidirectional causality between hydroelectricity
energy consumption per capita and real GDP per capita in both the short- and the longrun.
The results imply the existence of a feedback hypothesis with both hydroelectricity
consumption and growth promoting each other in more recent periods, as the importance
of hydroelectricity as a renewable energy, has become more prominent.
