Does price shock in electricity sector correct the consumption pattern in Iran?

Abstract

Nowadays role and importance of energy and its effect on economy is inevitable. It has become one of the most significant elements in process of growth as well as development. Thus, considering its importance, energy planning is a pivotal issue in economic planning and it is necessary to know factor influencing energy consumption in order to devise any kind of policy about planning.  In order to do this, one needs to construct a theoretical pattern which represents the given economy in mathematical equations. Hence, due to realization of energy prices in Iran and importance of electricity, we have discussed this part of energy consumption. To do so, time series data for the period (1973-2007) has been used. Firstly, logarithm of the series is calculated and then using ADF, stationary of the series has been tested. As the next step, we have performed the Engle-Granger test to check for the spurious regression and finally a long-run relationship between the variables has been estimated. Our results indicate that the electricity is a necessary good and hence, the shocking approach is not an efficient one in order to rectify consumption patterns of electricity.

Keywords: Realization of Prices, Price Elasticity of Electricity, Iranian Economy, Cash Subsidies.