Electricity consumption and economic growth nexus in China: an autoregressive distributed lag approach

This study attempts to investigate the relationship among electricity consumption, economic growth, and employment in China. Distinct from most of the previous studies, our empirical research identifies a long-run equilibrium cointegration relationship among the three covariates during the period of 1971-2009 with the recently developed autoregressive distributed lag (ARDL) bounds testing approach. The parameters are estimated through a long-run static solution of the estimated ARDL model and short-run dynamic solutions of the error correction model. The estimated models successfully pass diagnostic tests and both the long-run and short-run elasticities are found to be statistically significant. The study also indicates the existence of short-run and long-run causalities from electricity consumption and employment to economic growth. Results of this study show that electricity serves as an important driver of economic growth. Based on these results, several policy prescriptions on energy use and economic development are suggested for China.