Investigating the Relationship between Energy Consumption and Economic Growth in Iran's Provinces Using Cointegration and Multivariate Panel Error Correction Model

Energy consumption as one of the most important factors in economic growth has a significant role in the economic development. In this study, there was on attempt to estimate the impact of energy consumption on economic growth in Iran's provinces to answer this question: Whether or not an increase in energy consumption lead to economic growth?
We estimated the relationship between energy consumption and economic growth in tree groups of Iran’s provinces (developed, less developed and undeveloped provinces) using economic theory and based on Panel Error Correction Model and panel cointegration and causality tests in the period of 1381 to 1389.
Long-run and short-run coefficient estimations have been done using Dynamic Ordinary Least Square and Pooled Mean Group respectively. The results indicate that increasing (decreasing) energy consumption in three kinds of provinces causes an increase (decrease) in economic growth. Thus, we accepted Feedback hypothesis in this study because of the bidirectional relationship between energy consumption and economic growth in Iran’s provinces.
Moreover, the effect of energy consumption on economic growth in developed provinces is more than two other kinds of provinces, so part of the development gap among three different groups of provinces could be explain by the gap in their energy consumption.