Iran. Econ. Rev. Vol. 20, No. 2, 2016. pp. 163-174 Aggregate and Disaggregate Energy Consumption Relation with GDP: Evidence for Iran Eisa Maboudian* 1 Khashayar Seyyed-Shokri 2 Received: 2016/04/05 Accepted: 2016/06/12 Abstract n this paper we investigated total energy consumption and its individual forms (oil, natural gas, electricity, renewable energies and coal) relationship with real gross domestic product (GDP) in Iran. We employed Hsiao’s (1981) methodology and annual data which cover 1967-2010 for investigation. The empirical findings indicate there is bidirectional causality effect with real GDP and total energy consumption as well as its three individual forms including, oil, natural gas and electricity. Therefore we can accept feedback hypothesis about total energy consumption-GDP linkage. There is not any causality effect with other individual forms of energy such as renewable energies and coal with GDP. These results are not too surprising for Iran, because share of oil, natural gas and electricity is higher than other forms of energy. Keywords: Energy Consumption, Iran, Causality Test. 1. Introduction Islamic republic of Iran is one of the major energy rich countries in the Middle East and in the world. According to British Petroleum Statistical Review of World Energy 2014,Iran has about 157 billion barrels of oil (proved reserves) almost 9.3% world's total oil reserves as well as 1192.9 trillion cubic feet of gas (almost 18.2% of total world gas). By counting oil and gas reserves Iran holds about 27.5% of world's total energy and even can be the number one country of the world in hydrocarbon reserves. Iran is also one of the major energy consumer countries with respect to its population. This is one of the most important challenges of Iran's economy specifically in recent decades. Energy export income (oil and gas) forms country's major 1 . Department of Economics, Islamic Azad University, Central Tehran Branch, Iran (Corresponding Author). 2. Assistant Professor, Department of Economics, Islamic Azad University, Central Tehran Branch, Iran. I
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Iran. Econ. Rev. Vol. 20, No. 2, 2016. pp. 163-174
Aggregate and Disaggregate Energy Consumption
Relation with GDP: Evidence for Iran
Eisa Maboudian*1
Khashayar Seyyed-Shokri2
Received: 2016/04/05 Accepted: 2016/06/12
Abstract n this paper we investigated total energy consumption and its
individual forms (oil, natural gas, electricity, renewable energies and
coal) relationship with real gross domestic product (GDP) in Iran. We
employed Hsiao’s (1981) methodology and annual data which cover
1967-2010 for investigation. The empirical findings indicate there is
bidirectional causality effect with real GDP and total energy
consumption as well as its three individual forms including, oil, natural
gas and electricity. Therefore we can accept feedback hypothesis about
total energy consumption-GDP linkage. There is not any causality
effect with other individual forms of energy such as renewable energies
and coal with GDP. These results are not too surprising for Iran,
because share of oil, natural gas and electricity is higher than other
forms of energy.
Keywords: Energy Consumption, Iran, Causality Test.
1. Introduction
Islamic republic of Iran is one of the major energy rich countries in the
Middle East and in the world. According to British Petroleum Statistical
Review of World Energy 2014,Iran has about 157 billion barrels of oil
(proved reserves) almost 9.3% world's total oil reserves as well as 1192.9
trillion cubic feet of gas (almost 18.2% of total world gas). By counting oil
and gas reserves Iran holds about 27.5% of world's total energy and even can
be the number one country of the world in hydrocarbon reserves. Iran is also
one of the major energy consumer countries with respect to its population.
This is one of the most important challenges of Iran's economy specifically
in recent decades. Energy export income (oil and gas) forms country's major
1 . Department of Economics, Islamic Azad University, Central Tehran Branch, Iran
(Corresponding Author). 2. Assistant Professor, Department of Economics, Islamic Azad University, Central Tehran
Branch, Iran.
I
164/ Aggregate and Disaggregate Energy Consumption Relation with GDP…
export income and every year major part of government budget is financed
by this income, for this reason Iran's economy is vulnerable to energy
shocks. Energy intensity in Iran is high in comparison with other oil
exporting countries such as OPEC member countries; Fig (2) shows this
issue. In recent decades, low prices for energy, population growth and
growth of industrialization and urbanization has increased energy
consumption tremendously. Fig (1) shows total energy consumption versus
GDP in Iran. However the government in recent years wants to decrease
energy consumption subsidies in order to reform energy consumption
situation. Iran is planning to build nuclear power plants in order to its future
needs. The above mentioned points highlight the importance of this study.
The main goal of this paper is to examine the relationship of total energy
consumption and its individual forms with GDP in Iran. This relationship
has been tremendously a subject of ongoing debate in the energy economics
literature .In this context we confront with four different hypotheses:
Neutrality hypothesis, conservation hypothesis, growth hypothesis and
feedback hypothesis. Neutrality hypothesis indicates no causality between
energy consumption and economic growth in any directions. Conservation
hypothesis indicates a unidirectional causality running from economic
growth to energy consumption. Growth hypothesis indicates a unidirectional
causality running from energy consumption to economic growth. Feedback
hypothesis indicates a bi-directional causality between economic growth and
energy consumption. Each hypothesis has its own importance in policy
implications (Wei Zhang & Shuyun Yang, 2013).
If, for example, there exists unidirectional Granger causality running
from income to energy, it may be implied that energy.
Fig. 1: Total Energy Consumption versus GDP in Iran in Logarithmic Form
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Iran. Econ. Rev. Vol. 20, No. 2, 2016 /165
Fig. 2: Energy Intensity - Total Primary Energy Consumption per Dollar of
GDP (Btu per Year 2005 U.S. Dollars)
Conservation policies may be implemented with little adverse or no
effects on economic growth. If unidirectional causality runs from energy
consumption to income, reducing energy consumption could lead to a fall in
income or employment. The finding of no causality in either direction, the
so-called ‘neutrality hypothesis’ would imply that energy conservation
policies do not affect economic growth (Asafu-Adjaye, 2000). This paper's
contribution is twofold in comparison with past literature, investigation of
individual forms of energy consumption and employing Hsiao’s (1981)
methodology. The remainder of this paper is organized as follows. Section2
presents a review of literature.Section3 introduces the data and
methodology.Section4 presents empirical findings and their analysis and the
final section adds up the results.
2. Review of Literature
In this section we review some of the past studies about the relationship of
energy consumption and GDP. Many studies have been done about causality
relation between energy consumption and GDP in the energy economics
literature. We can divide these studies for energy dependent and energy
exporting countries or in another view we can divide them for developed and
developing economies. The results of some of these studies are conflicting
because of methodological and data differences.
Specifically in recent decade because of non-stationary variables
researchers have employed cointegration and error correction models (ECM)
(Mahmoud A. Al-Iriani , 2006; Asafu-Adjaye, 2000; Lise & Montfort, 2007;
166/ Aggregate and Disaggregate Energy Consumption Relation with GDP…
Yoo, 2005; Glasure, 2002) to get rid of spurious regression or Toda and
Yamamoto (1995) methodology (Hondroyianais et al, 2002 ; Fatai et al,