The Impact of Electrification on Economic Development: An Empirical Analysis of Bangladesh

Electrification has now become the crucial factor that drives economic development in any developing country. Existing literature have shown a direct positive correlation between poverty diminution, increase in employment, an increase in the standard of living, technological and knowledge diffusion with the increasing rate of electrification. Electrification helps induce productivity and skills development by enabling longer work hours by lighting up workplaces and powering up technological devices like computers. Electrification is also expected to improve access to information, social and financial services, and improve access to better healthcare through modern diagnostic machines. Electrification opens up tremendous opportunities to boost the economic development and solve social problems along the way, like the elimination of poverty. The aim of this study is to examine the causal relationship between electrification and economic development in Bangladesh over the period 1990-2015 and to check whether the empirical evidence supports the conventional hypothesis as discussed above. We would like to address the following question: Can electrification enhance economic development? We considered a bivariate model and performed the Augmented Dickey-Fuller (ADF) and test to check if the variables are stationary, either at their level or first differences. Using Johansen cointegration method, the empirical findings show that there exists long run cointegration between the variables. Next, we applied the Granger causality test, and our results revealed that electrification plays a vital role in the economic development in Bangladesh. Thus, Bangladesh should take more rigorous steps for electrification throughout the country.

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