Electricity consumption and economic growth in China: Cointegration and co-feature analysis

This paper applies the cointegration theory to examine the causal relationship between electricity consumption and real GDP (Gross Demostic Product) for China during 1978-2004. Our estimation results indicate that real GDP and electricity consumption for China are cointegrated and there is only unidirectional Granger causality running from electricity consumption to real GDP but not the vice versa. Then Hodrick-Prescott (HP) filter is applied to decompose the trend and fluctuation component of the GDP and electricity consumption series. The estimation results indicate 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.