Study of Nonlinear Effects of Energy Consumption on Gross Domestic Production in Iran

Abstract

The main objective of this study is to evaluate the impact of changes in energy consumption on real GDP in Iran within the framework of the non-linear smooth transition autoregressive method between 1965 and 2013. In this regard, the linear model is tested against a nonlinear model. It is found that the nonlinear model has better estimation. Then, using Trasvirta test, the nonlinear logistic model is estimated. The variations in the independent variables are divided into three parts including up, low and middle thresholds of changes), based on the nonlinear logistic model. The results show that the effect of gas consumption on the real GDP is U-shaped. This means that the low threshold rises to the middle threshold, and the middle threshold declines to the high threshold. In the case of electricity consumption, the results indicate that a positive and increasing relationship exists in all the thresholds. Positive changes in oil consumption in the low threshold have a positive effect on GDP changes, and this effect is reduced by moving from the low to the up threshold; in the up threshold, the effect will be in the opposite direction of oil consumption changes.