Abstract
Electricity plays a crucial role in the economic development of most economies. The causality nexus between electricity consumption and economic growth is important in enacting energy consumption policy and environmental policy. Many researchers have studied the causality between energy consumption and economic growth yet no consensus has emerged. Irrespective of the numerous researches conducted between these two variables, less evidence has been recorded in Ghana. Studies establishing the direction of causality between economic growth and energy consumption have concluded mixed result posing stern threat to Ghana’s energy policy. It is therefore viable to investigate the direction of causality between electricity consumption and economic growth in Ghana. This study uses the Cobb-Douglas growth model covering time series data from 1970 to 2014. Vector Error Correction Model was also conducted in order to empirically ascertain the error correction adjustment. Granger Causality test was used to determine the direction of causality between electricity consumption and economic growth and the empirical findings obtained herein reveals that there exists a unidirectional causality running from GDP to electricity consumption. This line of causality obtained from the data supports Growth-Led-Energy Hypothesis. Therefore, it is evident that Ghana is a less energy-dependent economy.
Highlights
Energy is considered a spine to production worldwide
Granger Causality test was used to determine the direction of causality between electricity consumption and economic growth and the empirical findings obtained reveals that there exists a unidirectional causality running from Gross Domestic Product (GDP) to electricity consumption
This paper investigates the direction of causality between electricity consumption and Variable ECT_1
Summary
The interdependency between electricity consumption and economic growth (feedback hypothesis) depicts bidirectional causality. This means that policies enacted on saving energy may adversely impact economic growth. The consumption of electricity has considerably increased as each year passes by In this regard, [13] has opined that electricity is a multitalented energy currency that supports an extensive variety of goods and services that improve life quality, productivity and empower entrepreneurial actions. This makes power utilization to be emphatically and exceptionally correlated to per capita GDP. Based on the challenge Ghana face in electricity production and consumption, it is imperative to determine the direction between the two variables under consideration
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