Electric power consumption and economic growth in China: A panel cointegration analysis and causality test

Abstract

In the empirical documents investigating the relationship between energy consumption and economic growth, the existing researches usually use the econometric methods based on the time series and the power of test is worth doubting. In this paper panel cointegration and Granger causality test are adopted to estimate the relationship and source of causation between Chinese electric power consumption, energy price and economic growth. Panel unit root tests support the stationary of these three variables. However panel cointegration does not provide clearer evidences to show the long-run cointegration relationship among variables above. The empirical results also show the elasticity of income against energy consumption is 0.7702 and the elasticity of energy price is 0.2474. Further Granger causality tests and error correction modeling are implemented to show that there exists bi-directional Granger-causality running between energy consumption and economic growth whenever there exists the cointegration or not.