Estimating the macroeconomic determinants of total, renewable, and non-renewable energy demands in Bangladesh: the role of technological innovations

Abstract

Bangladesh is well on course to become one of the leading emerging market economies in the world. Hence, it can be expected that the economic growth of Bangladesh would substantially increase over the next decade. This, in turn, is likely to boost the energy consumption levels of the nation whereby meeting the surge in the energy demand would be a crucial agenda of the government. Therefore, it is important to understand the factors that influence the nation's energy demand. Against this backdrop, this paper aims to evaluate the macroeconomic determinants of total, renewable, and non-renewable energy demands in Bangladesh between 1980 and 2014. Besides, the analysis is conducted for both primary energy and electricity consumption levels. The econometric methods used in this study controlled for the structural break issues in the data. The key findings, in a nutshell, show that economic growth and household consumption expenditure positively influence the overall primary energy and electricity demands in Bangladesh while income inequality exerts opposite effects. Besides, technological innovations are found to be reducing the total and non-renewable energy demand in Bangladesh while increasing the demand for renewable energy. On the other hand, positive oil price shocks are found to be ineffective in influencing the renewable energy demand but slightly reducing the non-renewable energy demand. Finally, the causality estimates portray the feedback hypothesis in almost all the cases to highlight the inter-relationships between economic growth and energy demand in Bangladesh. Hence, in line with these findings several critically important policy implications are suggested for managing the overall energy demand in Bangladesh.

Keywords: ARDL; Bangladesh; Electricity consumption; Primary energy consumption; Structural breaks; Technological innovation.