Electricity Consumption and Economic Activities in China

Abstract

The nexus between electricity consumption and economic activities in China is investigated within a multivariate framework which includes electricity consumption, GDP per capita, heavy industry share, and efficiency improvement. The cointegration estimation results show that there is a long-run equilibrium between electricity consumption and the three other variables. The error correction term of the error correction model is significant, and its coefficient has the expected negative sign, which implies that it indeed reflects an error correction mechanism that tends to bring the system closer to its long-run equilibrium. Furthermore, the Granger causality test results suggest that there is unidirectional Granger causality running from GDP per capita, heavy industry share, and efficiency improvement to electricity consumption. Finally, impulse responses indicate that GDP per capita and heavy industry share have a positive effect on electricity consumption, but efficiency improvement has a negative effect on it. Variance decompositions results are in accordance with that of impulse responses.