Causality and Stationarity with Structural Break in Electricity Consumption and GDP per capita in Mexico

Abstract

Electricity is the key in most production processes, therefore understanding causality, cointegration, and stationarity between electricity consumption and production is the starting point in the debate on its economic effects. Vector error correction model (VECM) and cointegration models, besides stationarity tests with structural break, were used to examine this relationship in Mexico over the period 1940-2018. Results support the hypothesis but only after to consider the structural change highlighted by the trade opening, since causality, stationarity, and cointegration can only be demonstrated by partitioning the period by 1985, the production per capita breakpoint. In the first stage of the series, causality ran from electricity to product, while in the second stage it was bidirectional. It is recommended to adapt the electricity programs to changes in the political arena. The originality of this contribution lies in the long-term analysis of the energy sector, emphasizing the importance of the breakpoints. Despite of some sensitivity performing the regression analysis, the conclusions recommend a strengthening of the energy sector as a feasible means of recovering the sustained growth achieved by Mexico in other times.