Economic growth-electricity consumption nexus in Latin America and the Caribbean

What is it about?

In this paper, we analyze the causal relationship between electricity consumption -in kWh per capita- and Gros domestic product (GDP) per capita -measured in constant 2015 USD- for a group of 31 Latin American and Caribbean (LAC) countries between 1980 and 2021. Our results show that there are statistically significant feedback impacts between the research variables in the long run. Specifically, a 1% increase in electricity consumption raises GDP by 0.5% and a 1% increase in GDP produces a 1.54% increase in electricity consumption, reflecting the nature of the latter as a luxury good and implying a trade-off between economy and environment, since while greater electrical infrastructure drives economic growth, the latter also increases economic growth whose use in an irresponsible manner could lead to environmental degradation through higher CO2 emissions. The main policy implication is therefore that it is necessary to promote economic growth based on infrastructure focused on sustainable development, ensuring the well-being of present and future generations.

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Photo by Nick Fewings on Unsplash

Photo by Nick Fewings on Unsplash

Why is it important?

We consider that our paper will give luces to policymakers about the implementation of the adequate regional electric policies that guarantee the economic and development sustainability in Latin America and the Caribbean, and that support and advance the affordable and clean energy and the responsible consumption and production of electric energy in the Latin America and the Caribbean regions, questions that are important subject areas of this prestigious journal. Furthermore, it is important to highlight that the novelty in our paper is underpinning on the generation of new empirical evidence with recent statistical data for the relationship between electricity consumption and economic growth in Latin America and the Caribbean, a region that, although it has been object of analysis in previous studies at the sub-sample level, the results reported for the same have not been the subject of discussion as a case of particular analysis as developed in the present research. Additionally, the research allows to recognize the importance of the nexus between the economy and the environment for the sustainable development for the region under study.

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