Electricity consumption and economic growth in Uganda

Abstract

This paper examines the causal relationship between electricity consumption and economic growth for Uganda (2008–2018). Electricity consumption is among the key drivers of economic growth. Studies have conflicting results on the direction of causality and methodology. The hypothesis that explains causality follows growth, conservation, feedback, and neutral. The study uses a vector error correction model within a multivariate data framework. The Johansen Cointegration test was carried out to ascertain if there exists a long-run relationship between electricity consumption, real fixed capital formation, labour force, and real GDP. Data from both World Bank Development Indicators and the Electricity Regulatory Authority of Uganda was used. The results indicate bidirectional causality between electricity consumption and economic growth in both the short run and long run. The study recommends Ugandan authorities expand the electricity infrastructure to increase electricity production only and increase electricity consumption with a focus on efficient energy use to support economic growth.