Granger Causality Analysis of Energy Consumption and Value Added in Industrial Sub-Sectors of Iran: A Bootstrap Panel Approach

Document Type : Research Paper


1 M.Sc. in Economic Development & Planning, Faculty of Economics and Management, University of Tabriz, Tabriz, Iran.

2 Associate Professor of Economics, Faculty of Economics and Management, University of Tabriz, Tabriz, Iran.


Iran, as a developing country, has extensive energy resource types and is considered as an example of economic growth model based on natural resources. The industry is considered as one of the major sectors of energy consumption in the country, and determining the relationship between energy consumption and economic growth is one of the important issues in this field. In recent years, however, energy has become an interesting topic for researchers, only a limited number of studies on energy consumption have been undertaken in the industry. Therefore, this study seeks to evaulate the relationship between energy consumption and value added in industrial sub-sectors of Iran. The main aim of this research is to identify the relationship between total energy consumption and industrial sub-sectors value added of Iran during the period 1995-2017. The panel Granger causality was used to investigate the causality between variables based on the bootstrapping approach to accurately evaluate the results. The outcomes indicate that there is no causality between total energy consumption and value added growth in industrial Sub-Sectors. Therefore, the rising in energy consumption does not cause a growth of value added and saving policy can be used without any decrease in value added growth. Value added growth cause energy consumption in two main industrial sub-sectors. Thus, any increase in value added causes a rise in total energy consumption, and it is essential to prioritize these sub-sectors in all industry-related policies.


Main Subjects


    1. Altinay, G., & Karagol, E. (2004). Structural break, unit root, and the causality between energy consumption and GDP in Turkey. Energy Economics26(6), 985-994.
    2. Apostolakis, B. E. (1990). Energy—capital substitutability/complementarity: The dichotomy. Energy Economics12(1), 48-58.
    3. Araç, A., & Hasanov, M. (2014). Asymmetries in the dynamic interrelationship between energy consumption and economic growth: evidence from Turkey. Energy Economics, 44, 259-269.
    4. Armen, S. A., & Zare, R. (2005). An Investigation of Granger – Causal Relationship between Energy Consumption & Economic Growth in Iran (1967-2002). Iranian Journal of Economic Research24 (7), 117-143. (In Persian)
    5. Baltagi, B. H., Feng, Q., & Kao, C. (2012). A Lagrange Multiplier test for cross-sectional dependence in a fixed effects panel data model. Journal of Econometrics, 170(1), 164-177.
    1. Behbudi, D., & Asgharpour, H. (2009). Structural Breaks, Energy Consumption and Economic Growth in Iran (1967-2005). The Economic Research, 9(3), 53-84. (In Persian)
    2. Deputy of Infrastructure Research and Production Affairs, Office of Energy, Industry and Mining Studies of the Islamic Parliament of Iran (2015). Prospects for industrial growth in the Iranian economy. Tehran, Iran: Islamic Parliament Research Center. (In Persian)
    3. Expediency Discernment Council (2003). Vision document of the Islamic Republic of Iran until 2025, Tehran, Iran. (In Persian)
    4. List, F. (1856). National system of political economy. JB Lippincott & Company. (In Persian)
    5. Lotfalipour, M. R., & Mahdavi Adeli, M. H. (2016). Study on the Relationship between Energy Consumption, Economic Growth and Export Industry in Iran (Analysis Based on Panel Data). Economic Growth and Development Research, 24(6), 17-38. (In Persian)
    6. Mozayani, A. M., Esari Arani, A., Afsharian, B., & Rasouli, A.   (2015). Redefinition of the Relation between Energy Consumption and Economic Growth in Iran: Markov Switching Approach. Economic Growth and Development Research, 30(9), 67-89. (In Persian)
    7. Sadeghi, S. K., Ranjpour, R. & Mokhtarzadeh Khaneghahi, N.   (2014). Modeling the relationship between electricity consumption and financial development in Iran. Iranian Energy Economics, 10(3), 131-149. (In Persian)
    8. Soytas, U., Sari, R., & Ozdemir, O. (2001). Energy consumption and GDP relation in Turkey: a cointegration and vector error correction analysis. Economies and business in transition: facilitating competitiveness and change in the global environment proceedings1, 838-844.
    1. Berndt, E. R., & Wood, D. O. (1979). Engineering and econometric interpretations of energy-capital complementarity. The American Economic Review, 69(3), 342-354.
    2. Bowden, N., & Payne, J. E. (2009). The causal relationship between US energy consumption and real output: a disaggregated analysis. Journal of Policy Modeling, 31(2), 180-188.
    3. Breusch, T. S., & Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47(1), 239-253.
    4. Dagher, L., & Yacoubian, T. (2012). The causal relationship between energy consumption and economic growth in Lebanon. Energy policy, 50, 795-801.
    1. Ebohon, O. J. (1996). Energy, economic growth and causality in developing countries: a case study of Tanzania and Nigeria. Energy policy, 24(5), 447-453.
    2. Efron, B. (1979). Computers and the theory of statistics: thinking the unthinkable. SIAM review, 21(4), 460-480.
    3. Eggoh, J. C., Bangaké, C., & Rault, C. (2011). Energy consumption and economic growth revisited in African countries. Energy Policy, 39(11), 7408-7421.
    1. Gibbons, J. (1984). Capital-Energy Substitutionin the Long Run. The Energy Journal5(2), 109-118.
    2. Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 37(3), 424-438.
    3. (In Persian)
    4. (In Persian)
    5. (In Persian)
    6. Kavrakoğlu, İ. (1981). Ülke ekonomisinde enerji sorunu ve çözüm yolları. (energy problem in the economy of the country and its solution). Istanbul: Istanbul Sanayi Odasi Arstirma Diaresi.
    7. Kónya, L. (2006). Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling23(6), 978-992.
    8. Kraft, J., & Kraft, A. (1978). On the relationship between energy and GNP. The Journal of Energy and Development, 3, 401-403.
    1. Mutascu, M. (2016). A bootstrap panel Granger causality analysis of energy consumption and economic growth in the G7 countries. Renewable and Sustainable Energy Reviews, 63, 166-171.
    2. Ozturk, I. (2010). A literature survey on energy–growth nexus. Energy policy, 38(1), 340-349.
    3. Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of econometrics, 142(1), 50-93.
    4. Pesaran, H. M. (2004). General diagnostic tests for cross-sectional dependence in panels. University of Cambridge, Cambridge Working Papers in Economics435.
    1. Stern, D. I. (1993). Energy and economic growth in the USA: a multivariate approach. Energy economics, 15(2), 137-150.
    2. Stern, D. I. (1999). Is energy cost an accurate indicator of natural resource quality. Ecological Economics, 31(3), 381-394.
    3. Stern, D. I. (2000). A multivariate cointegration analysis of the role of energy in the US macroeconomy. Energy economics, 22(2), 267-283.
    4. Stern, D. I. (2010). The role of energy in economic growth. USAEE-IAEE Working Paper, (10-055).
    5. Stern, D. I., & Cleveland, C. J. (2004). Energy and economic growth. Rensselaer Polytechnic Institute (No. 0410). Rensselaer Working Papers in Economics.
    6. Tintner, G., Deutsch, E., Rieder, R., & Rosner, P. (1977). A production function for Austria emphasizing energy. De Economist125(1), 75-94.