Bivariate Cointegration Analysis of Energy-Economy Interactions in Iran
Fixing the prices of energy products below their opportunity cost for welfare and redistribution purposes is common with governments of many oil producing developing countries. This has often resulted in huge energy consumption in developing countries and the question that emerge is whether this...
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| Format: | Article |
| Language: | English |
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Danubius University
2015-12-01
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| Series: | Acta Universitatis Danubius: Oeconomica |
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| Online Access: | http://journals.univ-danubius.ro/index.php/oeconomica/article/view/3060/2986 |
| Summary: | Fixing the prices of energy products below their opportunity cost for welfare and
redistribution purposes is common with governments of many oil producing developing countries. 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. Available statistics
show that Iran’s economy growth shrunk for the first time in two decades from 2011 amidst the
introduction of pricing reform in 2010 and 2014 suggesting a relationship between energy use and
economic growth. Accordingly, the study examined the causality and the likelihood of a long term
relationship between energy and economic growth in Iran. Unlike previous studies which have focused
on the effects and effectiveness of the reform, the paper investigates the rationale for the reform. The
study applied a bivariate cointegration time series econometric approach. The results reveals a one-way
causality running from economic growth to energy with no feedback with evidence of long run
connection. The implication of this is that energy conservation policy is not inimical to economic
growth. This evidence lend further support for the ongoing subsidy reforms in Iran as a measure to
check excessive and inefficient use of energy. |
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| ISSN: | 2065-0175 2067-340X |