The Relationship between the Electricity Consumption and Economic Growth in China

In this paper we first use Hodrick-Prescott filter to decompose the trend and fluctuation component of the GDP growth rate and the growth rate of the electricity consumption time series. Secondly, we use Granger causality test and the GARCH model to analyze the causal relationship and the conditional heteroskedasticity between the GDP growth rate and the electricity consumption growth rate for China during January 1993 to June 2006. Our estimation results indicate that only the trend ingredients in the growth rate of electricity consumption sequence has significant Granger impact on the trend ingredients in GDP growth rate sequence in the level of value, and the others have not Granger causality. From the evidences, we find that there is conditional heteroskedasticity phenomenon in the sequence of the GDP growth rate sequence and the electricity consumption growth rate sequence and we further analyze this phenomenon by the results. These empirical findings indicate that the development of electric power should be first in economic development.