The dynamic relationship between energy consumption and economic growth in China

Economic growth of is mainly associated with technical changes as well as energy consumption of a nation. The causality between energy consumption and economic growth has created much more attention in the literature. With advanced technology and automated comfort life, the requirement of energy demand has been increasing rapidly. The goal of this study is to examine the causal relationship between energy consumption and economic growth in China over the period of 1980 – 2013. As a first step, stationary properties of the selected variables were tested using unit root test statistics. Next, the Johansen co-integration with Vector error correction model (VECM) was applied to examine the dynamic links between among the variables.The result confirmed a long run bidirectional causal relation running between energy consumption and economic growth. Furthermore, results make a significant contribution to policy makers to open up a new direction to the development of energy sector in China.