CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter critically reviews the literature relevant to the study. To achieve the stated objectives of this study, it is critical to understand the concept of economic growth as it relates to electricity consumption. The different definitions of economic growth given by authors and scholars will be taken into consideration. The economic debates surrounding the research have not explicitly linked the relationship between energy consumption and economic growth to theories, although empirical evidence has demonstrated results for about two decades. Furthermore, research evidence has uncovered some correlation between electricity use and wealth creation (Ghosh 2002; Shiu and Lam 2004; Morimoto and Hope 2004; Jumbe 2004; Wolde-Rufael 2004; Narayan and Smyth 2005; Yoo 2005). Problems 2.2.1 What is economic growth? Economic growth is the increase in the market value of goods and services produced by an economy over time. It is conventionally measured as the percentage rate of increase in real gross domestic product, or real GDP. Of greater importance is the growth of the GDP-to-population ratio (GDP per capita), also called per capita income. An increase in per capita income is called intensive growth. GDP growth caused only by an increase in population or land area is called extensive growth. Growth is usually calculated in real terms – that is, in terms adjusted for inflation – to eliminate the distorting effect of inflation on the price of goods produced. In economics, "economic growth" or "economic growth theory" typically refers to the growth of potential output, that is, output under "full employment" conditions. Since economic growth is measured as an annual percentage change... middle of the paper. .....the failure should be explained. The Cobb-Douglas production function fails this test. (Nick Wilkinson 2005) The various theories discussed in this section simply show that there is a relationship between the quantity of inputs, which in some cases are labor and capital, and the quantity of output produced and this leads to a certain level of economic growth, in different countries at different times. In these models we also see the role that the manufacturing industry plays in growth and development and the electric power sector has an important role to play in helping to increase or decrease the activities of the industrial sector. Infrastructure-led development is the most permanent development because as investment in some key infrastructure increases, the productivity level of the industrial sector increases and thus growth automatically kicks in .