Energy and Economic Growth in Ethiopia: Granger Causality Approach
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Date
2011-06
Authors
Wondimaghegn, Mehari
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Publisher
Addis Ababa University
Abstract
The aim of this paper is to re-examine the causal relationship between energy
consumption and economic growth in Ethiopia using annual data from 1981 to
2006, in a multivariate framework by including labor and capital as additional
variables. We apply the Granger causality test, variance decomposition analysis
and Generalised impulse response analysis in linear multivariate models to
evaluate how important is the causal impact of energy consumption on economic
growth relative to labor and capital. The results give the evidence of causality
running from economic growth to energy consumption. The variance
decomposition analysis reveals that energy was no more than a minor
contributing factor to output growth and certainly not the most important one
when compared to capital and labor. Capital and labor are the most important
factors in output growth in Ethiopia.
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Keywords
Economic Growth in Ethiopia