Electricity consumption and economic growth nexus in Afghanistan: impact, causality, projections, and policy implications

This study aims to investigate the impact and causal relationship between electricity consumption and Afghanistan’s economic growth using datasets from 2002 to 2019. Furthermore, the study also examined the projection of electricity consumption until 2030 to foster policy enunciation. For co-integration, the study uses the autoregressive distributed lag model, and for future energy projection demands, it uses the autoregressive integrated moving average (ARIMA) model. The results indicate that electricity consumption and economic growth have a significant positive relationship in the short and long term. Two basic estimators, Fully Modified Ordinary Least Squares (FMOLS) and Canonical Co-integration Regression (CCR), further confirmed the robustness of the results. In the short term, a one-way causal relationship flows from per capita gross domestic product to per capita electricity consumption, supporting the conservation hypothesis. In contrast, in the long term, a two-way causal relationship exists between these two variables, which supports the strong feedback hypothesis. Additionally, the projection results indicate that annual per capita electricity consumption and per capita GDP will continue to rise. We expect the annual per capita electricity consumption to rise from 128.6442 KWh in 2019 to 190.7997 kWh in 2030. Scientifically, a conservation/electricity-saving policy should be implemented in the short term in Afghanistan. In contrast, in the long run, the citizens’ power demand calls for short-term, medium-term, and long-term strategies for generating electricity. The existing literature indicates a lack of research on the proposed topic, with no empirical studies conducted on the relationship between electricity consumption and economic growth in Afghanistan. Therefore, we considered the impact of trade openness on these two variables within the context of Afghanistan.