Structural Break: The Electricity Consumption and Economic Growth in Iran

The electricity power plays an important role in economic activities, industrialization. The improvement in electricity consumption per capita indicates that economic growth, development and social welfare utilized stable growth in economy.According to new econometrics topics, existence of structural breaks and regime shifts can affect the results of macroeconomics variables relationships and neglect of such factor may lead to an unreliable and misleading findings. Therefore, considering structural breaks and regime shifts in examination of the empirical relationship between electricity consumption and economic growth is a necessity.In this paper an attempt has been made to study the relationship between electricity consumption and economic growth with an emphasis on structural breaks over the period of 1967 to 2005. To achieve this, Zivot & Andrews unit root test is performed to determine the structural shifts endogenously. Also, Gregory-Hansen co-integration test is carried out to study the long-run relationship between electricity consumption and economic growth with an emphasis on structural breaks. The findings suggest that given the structural break, there is a positive long-run relationship between electricity consumption and economic growth.