Interconnectedness of Electricity Consumption and Economic Growth in Ethiopia
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Date
2019-06
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Addis Ababa University
Abstract
Globally, until recently, the Electricity Consumption - Economic Growth debate had
produced conflicting and interesting outcomes. In order to provide support and useful
information for policy advisers and to fill the knowledge gap in the area, this thesis
investigated the short-run and long-run causal relationships between Economic Growth
and Electricity Consumption as target variables in Ethiopia during the period 1988–2017.
The research also included additional variables such as FDI, Government Expenditure
and Net Export and will be the first in its kind on this topic while studied as a single country
study in the Ethiopian case. This thesis employed Autoregressive Distributed Lag (ARDL)
and Error Correction Model (ECM), as an econometric approach, with the help of
statistical software EViews. The results have shown that all variables are I(0) and I(1);
there is co-integration relation between the variables; but there is no causal relationship
between electricity consumption and economic growth. Moreover, the results of the
Granger Causality test confirm the neutrality hypothesis. Despite its enormous
hydroelectric potential, Ethiopia does not yet meet its energy requirements in the power
sector and Electricity Consumption accounts for only 2% of total Energy Consumption.
The results should, therefore, be interpreted with care as Electricity is at the heart of
development. Overall, the results of this study show that the long-run equilibrium
relationship between electricity consumption and economic growth in Ethiopia needs
further attention in future research.
Keywords: Economic Growth, Electricity Consumption, ARDL and ECM.
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Keywords
Economic Growth, Electricity Consumption, ARDL and ECM.