Are fluctuations in electricity consumption per capita in Sub-Saharan Africa countries transitory or permanent?

Abstract

This paper examines the random walk hypothesis for electricity consumption in sub-Saharan Africa countries over the period 1971–2013 by applying univariate and panel unit root tests. In addition to the first and second generation panel unit root tests, we apply the recent Lagrange Multiplier (LM) panel unit root test developed by Im, Lee and Tieslau, (2005). This test does not suffer from bias and spurious rejection because it allows for structural breaks in the intercept and slope. The empirical results of the LM unit root tests show that stationarity in electricity consumption is found in 11 of the 17 countries, which corroborates the findings of the first and second generation panel unit root tests. These results indicate that any shock to electricity consumption has a transitory impact for almost all sub-Saharan Africa countries implying that electricity demand will return to its time trend. Failure to reject the unit root hypothesis for the previous studies may be the result of a loss of power to allow for possible structural breaks.