ELECTRICITY INVESTMENT AND ECONOMIC GROWTH IN CHINA: A DEMONSTRATION AND A FORECAST BASED ON THE VAR MODEL

Fan Yuxian, Yuan Xiaoling, He Songke

School of Economics and Finance of Xi ‘an Jiaotong University, Xi ‘an, Shaanxi, China

This paper represents a study on the dynamic influence of electricity investment on economic growth, which is based on the data from 1953 to 2012, by using the ADF test, the Granger test, the VAR model, the IRF (Impulse Response Function) model and the VEC model. In this research, other factors such as more fixed-asset investment and labor force are involved in the explanatory variables. The results are used to forecast the scenarios of economic growth on different electricity investment projects. The results indicated that electricity investment can strengthen economic growth in a short time when there is a steady equilibrium relationship in the long run. The positive impulse response of economic growth to electricity investment will last for four years. The contribution of electricity investment to economic development has been increasing year by year. The scenario analysis means that an S-shaped electricity investment is better than other investment projects in the promotion of economic growth.

Keywords: electricity investment, economic growth, VAR model, scenario forecast

JEL Classification: O18