Electricity consumption and sectoral output in Uganda: an empirical investigation

Joseph Mawejje,Dorothy N Mawejje

doi:10.1186/s40008-016-0053-8

Joseph Mawejje, Dorothy N Mawejje

Open Access

https://doi.org/10.1186/s40008-016-0053-8

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Abstract

We examine the causal relationship between electricity consumption and sectoral output growth in Uganda. First, we use vector error correction techniques to estimate the long-run relationship between electricity consumption and GDP growth. Second, we apply Granger causality tests to determine the direction of this relationship. Third, we disaggregate GDP into its major sectors of agriculture, industry and services and test for Granger causality between sectoral output growth and electricity consumption. At the macro-level, results suggest long-run unidirectional causality running from electricity consumption to GDP. At the sectoral level, results indicate long-run causality running from electricity consumption to industry; a unidirectional short-run causality running from services sector to electricity consumption; and neutrality in the agricultural sector. These results have important implications for policy. In particular, policies that improve electricity generation and consumption will accelerate growth in Uganda by facilitating industrial sector growth. Moreover, electricity conservation policies can be applied in the services sector without hurting growth.

Highlights

Energy consumption plays an important role in the growth and development processes as it facilitates production and improves household welfare (Wolde-Rufael 2006; Karekezi 2002)
6.1 GDP and electricity consumption 6.1.1 Lag length selection The validity of empirical results depends on the careful specification and the appropriateness of the choice of the cointegrating rank specification of the underlying vector autoregressive (VAR) model
The formal testing of the lag structure carried out in this paper is based on the maximum likelihood function and is supported for our data by the Akaike Information Criteria (AIC), Schwartz Information Criteria (SIC), Hannan–Quinn Information Criteria (HQIC) and Final Prediction Error (FPE) lag reduction tests (Table 3)

Summary

Introduction

Energy consumption plays an important role in the growth and development processes as it facilitates production and improves household welfare (Wolde-Rufael 2006; Karekezi 2002). There exists a rich and diverse body of literature examining the causal relationship between energy consumption and economic growth (see Payne 2010 for a survey) This literature provides diverse results and has not been conclusive, especially on the direction of this relationship. Results from macro-founded research in other developing countries comparable to Uganda have not been conclusive, especially on the direction of causality (Akinlo 2008; Odhiambo 2010) Against this background, this paper investigates the relationship between electricity consumption and economic growth in Uganda. We confirm the “growth”, “conservation” and “neutrality” hypotheses in the industry, services and agriculture sectors, respectively These results suggest that current efforts to improve electricity generation will accelerate growth in Uganda by facilitating industrial sector growth. The rest of the paper is organised as follows: Sect. 2 provides the background; Sect. 3 surveys the literature; Sect. 4 introduces the methods; the data are introduced in Sect. 5; results are discussed in Sec. 6; Sect. 7 provides the conclusions and policy implications

Background

Methods

Results and discussion

Services does not Granger cause electricity consumption