Electricity consumption and economic growth: evidence from the East African community

Abstract

This study investigates the dynamic causal relationship between electricity consumption and economic growth in the East African Community (1990–2021). It seeks to interrogate the nature of relationship between electricity consumption and economic growth. The hypothesis used in this study is four folded including growth, conservation, feedback and neutral hypothesis. It uses panel data estimation techniques, particularly the panel dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), and non-linear autoregressive distributed lag (NARDL). The panel augmented Dickey Fuller (ADF)-fisher and Levin, Lin & Chu (LLC), 2003, was used to test the unit root process. Dumitreschu-Hurlin (2012) and pairwise Granger tests were used to test for the direction of causality. The findings indicate growth hypothesis with a unidirectional relationship running from electricity consumption to economic growth. Regional governments must increase their investments in electricity market trading to boost economic growth. Greater benefits from regional cooperation can be realized with increased investment in electricity consumption. This is a novel study of the dynamic causal relationship between electricity consumption and economic growth in the East African Community. It is a ground-breaking inquiry into the possibility of integrating electricity markets and their role in promoting economic growth.