Electricity Consumption, Foreign Direct Investment and Economic Growth in SAARC Countries

Abstract

Electricity Consumption effects have been hotly debated, as it is a promising electricity source. However, scholars have not achieved an agreement on this hot topic. Therefore, this article re-examines the foreign direct investment and economic effects of electricity consumption in SAARC countries from 1992 to 2022. Using the Granger causality test to conduct empirical analysis, the result suggests there is a Levin, Lin & Chu Test between electricity consumption, foreign direct investment and economic growth. Then, AK Model of Economic Growth is used for further analysis. The results suggest that economic growth is positively affected by electricity consumption. Meanwhile, electricity consumption can also indirectly affect economic growth through gross capital formation, the labor force, trade openness, research and development expenditure, and foreign direct investment. Based on the evidence this article provides, policymakers can issue corresponding policies to maintain sustainable economic growth while maximizing foreign direct investment.