Coal and gas consumption with economic growth: co-integration and causality evidences from India

Abstract

This paper examines ‘coal consumption–GDP (gross domestic product)’ and ‘gas consumption–GDP’ causality in India by deploying co-integration and Granger causality techniques. Augmented Dickey-Fuller tests reveal that all series viz. per capita GDP, per capita coal consumption, and per capita gas consumption, after logarithmic transformation are non-stationary and individually integrated of the order one. This study reveals the absence of co-integration but finds the existence of unidirectional Granger causality running from coal consumption to economic growth and from economic growth to gas consumption in bi-variate vector autoregression frameworks using annual data, covering the period 1970/71 to 2001/02. Thus, lowering the share of coal in the fuel mix would adversely affect India’s economic growth. On the other hand, a growth in the income is found to be responsible for the gas consumption being clean and efficient in nature.