Electricity Demand and Disaggregate Output: Evidence from Benin

Abstract

The current study aims to investigate the causality relationship between electricity consumption and disaggregate output variables such as: the industrial value added, the service value added, and the agricultural value added. The country of analysis is Benin. Annual series of electricity consumption and the disaggregated output variables have been collected from the US Energy Information Administration (US EIA) and the World Development Indicators (2014) websites. A unit root test with breakpoint has been applied to all the series, and revealed that they are all I (1) and have different break dates. Hence, the Autoregressive Distributive Lag (ARDL) model was used to investigate the cointegration relationship and both long and short run causality between electricity consumption and disaggregate output vairables. Results from the ARDL model revealed that the most significant break dates are 1990 and 2007, and that there is a causality relationship that runs from electricity consumption to each disaggregate output variables (the industrial value added, the service value added, and the agricultural value added) in both the long and short run. In the periods post 1990 and 2007, the country has encountered severe energy crises: 1994, 1998, 2006, 2007, 2008, 2012 and 2013, which have negatively affected economic activity in the industrial and service sectors. In addition, the period post 2007 has encountered different downfalls in cotton, the main agricultural exports. This situation has negatively affected the agricultural value added. We recommended first, that further research on the same topic must account for more than one structural break because of the different shocks encountered by the Beninese economy; and second, that Benin must not accept the implementation of an energy conservation policy, as electricity consumption drives growth in each sector of the economy (agriculture, service, industry). One of the limitation of the study is that many activities in the industrial, agricultural and service sectors are informal and while these activities consume electricity, their contribution to the economy is not calculated. How to compute the contribution of the informal sector to the economy remains one of the questions to be addressed in the energy-growth debate.