How rising temperatures affect electricity consumption and economic development in Mexico

This research uses the X-13 ARIMA methodology to investigate the co-movement, persistence, and volatility of business cycles, electricity consumption, and temperatures in Mexico during the period 2003.I–2019.IV. Theoretically, electricity consumption sustains a direct but non-linear relationship with economic development and temperatures because it is affected by seasonal factors. The greater the volume of economic activity, the greater the demand for electrical energy. Furthermore, extreme weather increases demand for electricity. During extreme weather seasons, electricity consumption is accentuated due to the greater fluctuation in the electricity supply. The analysis results demonstrate that electricity consumption and maximum and minimum temperatures are pro-cyclical with respect to the business cycle. Meanwhile, the link between minimum temperature and business cycle shows the greatest volatility, indicating that extreme cold represents a more significant risk factor than extreme heat. Furthermore, the duration of fluctuations is not significant; a result related to the seasonality of the temperature and the subsidies government policy to the electricity consumption. These findings enable the conclusion that temperatures have substantial effects on economic development and electricity supply. Public policy recommendations suggest strengthening the supply of electricity during the fall and winter seasons to mitigate the challenges posed by periods characterised by higher electricity consumption.