The causal relationship among electricity consumption, economic growth and capital stock in Iran

N. Salmanzadeh-Meydani and S.M.T. Fatemi Ghomi

Journal of Policy Modeling, 2019, vol. 41, issue 6, 1230-1256

Abstract: Due to the progress in industries, electricity consumption (EC) plays a vital role in economic growth (EG) as one of the important components of production. Furthermore, the influence of capital stock (CS) and labor is significant in EG. The main purpose of this paper is to examine causality and relationship among EG, EC, and CS, to forecast these variables and to propose related policy viewpoints for Iran. The empirical findings indicate the lack of short-run causality between pairwise variables. The results of standard Granger-causality (SGC) test demonstrate a bi-directional long-run causality between EC and EG and a uni-directional long-run causality from EC to CS. To forecast variables, the vector auto regression (VAR) model is estimated using logged variables. The Ariño and Franses approach is applied to transform time series data and forecast variables. The performance of the estimated VAR model is investigated and it clarified a highly accurate estimation with mean absolute percentage errors (MAPEs) of less than 4% for all variables. The results of the impulse response function (IRF) analysis indicate the dynamic behavior of long-run causalities. Therefore, to reduce EC and avoid negative impact on EG, Iran should adopt appropriate and affordable policies to raise efficiency optimization of EC. Finally, four policies including privatization, industrialization, supervision of banking resources and allocation of credits and liberalization of electricity prices are proposed.

Keywords: Causality; Economic growth; Capital stock; Vector auto autoregression regression model; Impulse response function analysis (search for similar items in EconPapers)
JEL-codes: C12 C22 C53 E27 G28 Q48 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:41:y:2019:i:6:p:1230-1256

DOI: 10.1016/j.jpolmod.2019.05.003

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