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

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.