Review of Contemporary Business Research

Short and Long Run Equilibrium between Electricity Consumption and Foreign Aid
Dr. Kamal Raj Dhungel

Abstract
Nepal is becoming an aid dependent country. It is because of its limited and unmanaged internal resources to invest in socio-economic development. Past trend shows that majority of hydropower projects were built through aid. In this light this study attempts to investigate short and long run equilibrium between the variableselectricity consumption as dependent, foreign aid as explanatory variable included in the system of single equation model during the period 1974-2011. There are two cointegrating equations indicating a long run equilibrium between the variables. The long run elasticity coefficient reveal that the 1% change in foreign aid will change the electricity consumption by 0.48%. The results of ECM indicate that there is both short and long run equilibrium in the system. The coefficient of one period lag residual is negative and significant which represent the long run equilibrium. The coefficient is -0.336 meaning that system corrects its previous period disequilibrium at a speed of 33.6% annually

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