Electricity Consumption and Economy Growth: Cointegration Technique Applied in China

Few scholars disagrees that electricity consumption is an important supporting factor for economy growth. However, the relationship between electricity consumption and economy growth has different manifestation in different country according to previous studies. In order to probe it, based on the time series of GDP and electricity consumption of China, the cointegration test is carried out in this paper. Firstly, the calculation is based on the original data and then, the data is transformed by Hodrick-Prescott (HP) filtering. The results show that electricity consumption has a prominent promote effect on the economic growth and there is only unidirectional Granger causality running from electricity consumption to real GDP but not the vice versa. Based on the filtered data, the cointegration test indicates that there is cointegration between not only the trend components, but also the cyclical components of the two series, which implies that, the Granger causality is probably related with the business cycle. The estimation results are of policy implication to the development of electric sector in China.