Electricity Consumption and Economic Growth in China: Multivariable Cointegration Analysis and Electricity Demand Forecasting

This paper applies the cointegration theory to examine the long-run equilibrium relationship between China´s power consumption and real GDP, electricity retail price, economic structure from 1978 to 2006. Our estimation results indicate that the real GDP, electricity sale price, economic structure are co- integrated and the long-run, income elasticity is 0.85,the long-run electricity price elasticity is -0.13, the long-run economic structure elasticity is 1.26. Given the existence of a long-run relationship, we estimate the Vector Error Correction Model ( VECM) of the electricity demand and forecast the short term electricity demand in China. Through the different trends of variables, China´s long term electricity demand is forecasted. The forecasting result shows that increasing the average retail price and reducing the proportion of heavy industry in the economic structure can reduce the electricity demand.