Linear and nonlinear Granger causality between electricity production and economic performance in Mexico

Understanding the Granger causality directions between electricity production (EP) and Gross Domestic Product (GDP) is helpful for policymakers in order to design, redesign, and implement effective energy policies. Although there are plenty of studies on this issue, no consistent conclusion about said relationship exists. In this paper, we provide an updated analysis for the case of Mexico in the context of the design and implementation of a new energy policy. We employ three tests, 2 linear and one nonlinear, and find no evidence of causal relation, in a Granger sense, between EP and GDP for the 1965-2018 period. Our results suggest that Mexican policymakers should consider enriching the bill by further designing policies that directly seek to promote a self-sufficient electricity sector by enhancing generation output by private actors and transmission capacity.