Electricity generation and economic growth in Indonesia

To cope with the increasing electricity demand and to overcome the supply shortage of electricity, it is imminent that investments be made on the electricity generation sector on a large scale in Indonesia. This paper attempts to investigate the causal relationship between electricity generation and economic growth in Indonesia, using time-series techniques for the period of 1971-2002. The results indicate that there is a uni-directional causality running from economic growth to electricity generation without any feedback effect. Thus, economic growth stimulates further electricity generation, and policies for reducing electricity generation can be initiated without deteriorating economic side effects in Indonesia.