Revista de Economía y Negocios

Revisiting Electricity Consumption Function: the Case of Saudi Arabia

Abstract

Mohammed Aljebrin

Total electricity consumption in Saudi Arabia is growing steadily and very rapidly. This study empirically estimates the critical parameters of electricity consumption function in Saudi Arabia for the period 1982-2011 by using ordinary least squares (OLS) and error correction model approach. The empirical results obtained show that, in both long run and short run, there are negative and significant relationship between the electricity consumption and electricity price. On the other hand, there is positive and significant relationship between electricity consumption and real income in the long run but insignificant in the short run. The error correction is correctly negatively signed and highly significant but has a small magnitude (-0.106) suggesting a slow adjustment process, which means that, if electricity consumption is 1 percent out of equilibrium, a 10.6 percent adjustment towards equilibrium will take place within the first year. The results of the this study will lead to some serious policy implications for decision-makers as electricity conservation policies through demand side management, which aim at declining the wastage of electricity without affecting the end-use benefits especially with no adverse effect on economic growth. JEL Classification: D12, L94, Q41