The Study of the Relationship between Industrialization and Energy Efficiency of Industrial Sector in Iran

Industrialization is the base of development in every country and is the most important factor in the structural evolution of economy as well as a way to achieve an economy with no reliance on oil revenues. Access to a new and advanced technology following industrial developments and evolutions leads to a decrease in energy consumption and, thereby, an increase in its efficiency. In this research, the nexus between industrialization and energy efficiency in the industrial sector of Iran during 1981-2008 has been investigated. To this purpose, ARDL and ECM approaches have been used. The results confirm the existence of a long-run equilibrium relationship between model variables. According to the long-run model, industrialization has a significantly negative effect on energy efficiency. The ratio of capital to labor per unit of energy also has a significantly positive effect on the energy efficiency, but the relative price of energy has no significant effect on energy efficiency. In the short-run model, the coefficient of error correction term indicates a high speed of adjusting the imbalance of short-run to long-term equilibrium. The result of Hsiao causality test indicates a one-way causality from industrialization to energy efficiency. Therefore, the approaches of efficiency improvement are manifested in the light of planning and adopting proper policies through correct implementation of industrial development strategies.