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The Electricity Consumption and Economic Growth Nexus in China: A Bootstrap Seemingly Unrelated Regression Estimator Approach

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Abstract

Electricity consumption in China has attracted increasing attention by the government in monitoring the economy. The purpose of the study is test whether electricity consumption is an appropriate indicator. To do that, this paper proposes an alternative bootstrap Granger causality test, which can capture the contemporaneous correlation of the term error in the Vector Autoregressive Model, based on a seemingly unrelated regression estimator. Using a quarterly data set containing more dynamic changes, this study reinvestigates the relationship between electricity consumption and economic growth. The results show that there exists a long-run relationship between the two variables. Electricity consumption can be treated as an indicator of the functioning of the economy. A strong unidirectional Granger causality is found running from gross domestic product to electricity consumption. However, the causality relationship from electricity consumption to gross domestic product is relatively weak. Thus, electricity consumption is a useful indicator to check the reliability of GDP data, however, caution is required when using electricity consumption to predict future economic activities in China.

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Acknowledgements

We are thankful for the support of Humanities and Social Science Research of the Ministry of Education Youth Project of China (No. 16YJCZH155), China Natural Science Foundation (Nos. 71203023 and 71663021).

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Authors and Affiliations

  1. Center for Industrial and Business Organization, Dongbei University of Finance and Economics, Dalian City, 116025, Liaoning Province, China

    Jianlin Wang & Hongzhou Li

  2. Research Academy of Economic and Social Development, Dongbei University of Finance and Economics, Dalian City, 116025, Liaoning Province, China

    Jiajia Zhao

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  1. Jianlin Wang
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  2. Jiajia Zhao
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  3. Hongzhou Li
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Correspondence to Jiajia Zhao.

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Wang, J., Zhao, J. & Li, H. The Electricity Consumption and Economic Growth Nexus in China: A Bootstrap Seemingly Unrelated Regression Estimator Approach. Comput Econ 52, 1195–1211 (2018). https://doi.org/10.1007/s10614-017-9709-1

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