The relationship between an electricity supply ceiling and economic growth: An application of disequilibrium modeling to Taiwan

•We investigate the relationship between economic growth and electricity demand in Taiwan during 1949 and 2000.•We construct a disequilibrium model that considers supply constraints in electricity generation capacity.•We find that electricity consumption faced supply constraints between 1959 and 1972 and that it does not reach the supply ceiling after 1973 until 2000.

Using a disequilibrium model, we investigate the relationship between the supply constraint of electricity generation capacity and electricity demand in Taiwan. We find that electricity consumption faced supply constraints in Taiwan between 1959 and 1972, but that generation capacity grew rapidly after 1973, such that economic growth came to be the major determinant of electricity consumption. Our experience in fitting this disequilibrium model suggests that simple causality tests are not a proper means to understand the relationship between electricity consumption and economic growth. Our results also suggest, at least for developing countries, that an electricity supply constraint sometimes plays an important role when investigating the relationship between energy consumption and economic growth.