Bivariate Cointegration Analysis of Energy-Economy Interactions in Iran

AUDOE, Vol. 11, No. 6, pp. 125-139

14 Pages Posted: 8 Jan 2016

See all articles by Ismail Soile

Ismail Soile

University of Lagos; University of Dundee - Centre for Energy, Petroleum and Mineral Law & Policy (CEPMLP)

Date Written: November 11, 2015

Abstract

It is common with governments of many oil producing developing countries to fix the prices of energy products below their opportunity cost for welfare and redistribution purposes. This has often resulted in huge energy consumption in developing countries and the question that emerge is whether this increased energy consumption results in higher economic activities. In Iran, the first and second phases of pricing reform to manage domestic consumption were introduced in 2010 and 2014 respectively. Available statistics show that the country’s economy growth shrunk for the first time in two decades from 2011. This suggests a relationship between energy use and economic growth that deserve to be investigated. Accordingly, the study examined the causality and the likelihood of a long term relationship between energy and economic growth in Iran. The outcome reveals a one-way causality running from economic growth to energy with no feedback with evidence of long run connection. The results lend further support for the ongoing subsidy reforms in Iran to check excessive and inefficient use of energy without necessarily causing harm to the country’s growth

Keywords: energy consumption, economic growth, granger causality, VAR, Iran

JEL Classification: C22, O40, Q43, Q48

Suggested Citation

Soile, Ismail, Bivariate Cointegration Analysis of Energy-Economy Interactions in Iran (November 11, 2015). AUDOE, Vol. 11, No. 6, pp. 125-139. Available at SSRN: https://ssrn.com/abstract=2711734

Ismail Soile (Contact Author)

University of Lagos ( email )

Akoka
PMB 4491
Akoka, Lagos State 00234
Nigeria
+2348076184184 (Phone)

University of Dundee - Centre for Energy, Petroleum and Mineral Law & Policy (CEPMLP) ( email )

Nethergate
Dundee, Scotland DD1 4HN
United Kingdom

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