The causal relationship between electricity consumption and economic growth has been examined for several economies except for the United States. The literature shows that there is not always bidirectional causality between GDP growth and electricity consumption depending on the country. The majority of the studies test this hypothesis using time-series analyses that rely on VAR models. This research is the first study to test the assumption of a causality relationship between demand for electricity and economic growth in the U.S.
Based on panel data at the state level, a panel VAR model reveals a bidirectional causal relationship between economic growth and electricity use in the U.S. between 1990 and 2018. A more holistic non-parametric entropy-based causality test conducted for each state was used to produce a causality map for economic growth and electricity consumption in the continental United States. The information-theoretic causality test suggests that there exists: bidirectional causality in three states; energy-economic growth causality in six states; economic growth-energy growth in nine states; and no causality was detected in the remaining 30 states.
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