Interconnectedness of Electricity Consumption and Economic Growth in Ethiopia

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Addis Ababa University


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.



Economic Growth, Electricity Consumption, ARDL and ECM.