CHAPTER TWO LITERATURE REVIEW2.1 IntroductionThis chapter critically reviews the literature relevant to the study. To achieve the stated objectives of this study, it is essential to understand the concept of economic growth in relation to electricity consumption. The different definitions of economic growth given by authors and academics will be taken into consideration. The economic debates that have surrounded the research have not explicitly linked the relationship between energy consumption and economic growth to theories, although empirical evidence has reported results for about two decades. Furthermore, research has found some correlation between electricity consumption and wealth creation (Ghosh 2002; Shiu and Lam 2004; Morimoto and Hope 2004; Jumbe 2004; Wolde-Rufael 2004; Narayan and Smyth 2005; Yoo 2005).2.2 Review of definitions Issues 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 growth rate as a percentage of real gross domestic product, or real GDP. More important is the growth in the GDP/population ratio (GDP per capita), also called income per capita. An increase in per capita income is called intensive growth. Growth in GDP caused solely by increase in population or territory is called extensive growth. Growth is generally calculated in real terms – that is, inflation-adjusted terms – to eliminate the distorting effect of inflation on the price of goods produced. In economics, "economic growth" or "economic growth theory" generally refers to the growth of potential output, that is, output at "full employment". Since economic growth is measured as the annual percentage change. .....the process needs to 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 amount of inputs, which in some cases are labor and capital, and the amount of output produced, leading to a certain level of economic growth. , in different countries and at different times. The role that the manufacturing industry plays in growth and development is also visible in these models and the electric power sector has a major role to play in contributing to the increase or decrease in the activities of the industrial sector . Infrastructure-led development is the most permanent development because as investment in certain key infrastructure increases, the productivity level of the industrial sector increases and growth automatically starts. .