Effects of Energy Consumption, GDP and Microfinance on Sustainable Poverty Reduction: Evidence from a Developing Economy

This study examines the combined and individual effects of gross domestic product (GDP), microfinance loan disbursement, per capita power consumption, and total energy consumption on poverty rate in Bangladesh by using annual time series data over the period of 1995–2022. This study determines the direction of causality by applying the Toda–Yamamoto (T–Y) procedure of the Granger causality test in the vector auto regression (VAR) model given the presence of a mixed order of integration of I(1) and I(2). The results of the stationary tests show that all variables except poverty rate are stationary at the I(1) order of integration, according to both the augmented Dicky–Fuller (ADF) and Phillips–Perron (PP) methods, while the poverty rate shows stationarity at the I(2) order in both methods. The T–Y empirical test result shows that the four independent variables combined affect the poverty rate significantly. Power consumption affects both GDP and microfinance and they have bi-directional causality relationship with each other. Our study shows that GDP and total energy consumption individually contribute to poverty reduction. Based on the findings, it is imperative that national policy makers place a greater emphasis on increased domestic production and the proper utilization of power and energy to reduce poverty rates. Policy implications may include strategies to promote sustainable energy development, improve energy efficiency, and provide equitable access to energy services.