The evaluation of standard of living and the role of household electricity consumption: a panel cointegration analysis

This research takes the analysis of the relationship between energy and income in a different direction than prior research, and it introduces a new set of analytical tools to the area. The results of our research are important because they raise additional questions about the effectiveness of income as a proxy indicator for standard of living, and these conclusions are supported by the use of more powerful analytical techniques. Our paper employs state-of-the-art econometric time series panel techniques to evaluate the nature of the relationship between income measures and energy consumption measures for seven East Indian Ocean countries. The fundamental premise of our research is that energy consumption at the household/residential level is a key indicator of the standard of living for the residents of a country. The general finding of the paper is that income and household electricity consumption measures are not cointegrated. Given this finding we conclude that standard of living measures/indexes that rely on income measures and do not directly include householdlevel energy consumption information will necessarily miss important indications of both levels and changes of standard of living. JEL Classifications: I31, C33, Q43.