ELECTRICITY CONSUMPTION, TRADE OPENNESS AND ECONOMIC GROWTH IN DEVELOPING COUNTRIES: A DISAGGREGATED APPROACH

Abstract

This study examines the relationship between electricity consumption, trade openness and economic growth in 25 African countries during 1980–2016. It disaggregates electricity into renewable and non-renewable and disaggregates trade into exports and imports. It employs cointegration and Granger causality techniques that enable us to determine both joint and individual causality, as well as account for individual heterogeneity and cross-sectional dependence. It also uses the variance decompositions (VDs) and impulse response functions (IRFs). This study shows a short-run and long-run joint causality from electricity and trade to growth, as well as a short-run and long-run joint causality from trade and growth to electricity. Besides, the Dumitrescu–Hurlin Granger non-causality technique shows a bidirectional causality between electricity and growth and between trade and growth but a unidirectional causality from electricity to trade. It also reveals the causal relationships from exports, imports, renewable and non-renewable electricity to growth. This study implies that electricity consumption and trade openness stimulate growth, while the latter also determines electricity consumption and trade openness. Based on the findings, we recommend some policy options.