Energy Consumption and Economic Growth in China: Evidence from a Time Series and Vector Autoregressive Model

Abstract

This study investigates the causal relationship between energy consumption and economic growth for China during the period between 1980 and 2015, using a multivariate framework that includes labor and capital as additional variables. A vector auto-regression model (VAR) and causality tests are employed to infer the existence and direction of the causality relationship. Based on the procedure introduced by Toda and Yamamoto (1995) and Dolado and Lutkepohl (1996), unidirectional causality is present between real GDP and energy use with both the ordinary Granger causality test and the modified Wald test (MWALD). The causality tests indicate the presence of short-term causality from energy consumption to economic growth, and the impulse response function supports the long-term causality in the same direction.