Electricity consumption and economic growth in China: A cointegration analysis

Abstract

In terms of the total electricity consumption, China currently ranks second in the world after the US. The demand for electricity is predicted to grow at an average annual rate of 5.9% between 1999 and 2020, significantly above the 3.3% world average. In order to establish a rational policy, the government must know how the changes in economic growth affect the electricity consumption. This study examines the causal relationship between the consumption elasticity and economic growth in China during the period 1952-2000. Through the use of cointegration techniques it is found that the long-run income elasticity and long-run price elasticity were 1.1 and -1.3, respectively. The error correction model showed that there exists bidirectional causality between the gross domestic product and electricity consumption. In other words, there is a Granger-type causal relationship between the electricity consumption and economic growth.