This study attempts to re‐investigate the electricity consumption function for Malaysia through the cointegration and causality analyses over the period 1970 to 2005.
The study employed the bounds‐testing procedure for cointegration to examine the potential long‐run relationship, while an autoregressive distributed lag model is used to derive the short‐ and long‐run coefficients. The Granger causality test is applied to determine the causality direction between electricity consumption and its determinants.
New evidence is found in this study: first, electricity consumption, income, foreign direct investment, and population in Malaysia are cointegrated. Second, the influx of foreign direct investment and population growth are positively related to electricity consumption in Malaysia and the Granger causality evidence indicates that electricity consumption, income, and foreign direct investment are of bilateral causality.
The estimated multivariate electricity consumption function for Malaysia implies that Malaysia is an energy‐dependent country; thus energy‐saving policies may have an inverse effect on current and also future economic development in Malaysia.
