Energy Consumption and Economic Growth Nexus in Africa Countries: A Simultaneous Equations Model Approach

Abstract

By adopting the Cobb-Douglas production function, this study examined the relationship between energy consumption, GDP, capital stock, and labour in 22 African countries from 1990 to 2018. To achieve this goal, the simultaneous equations were analysed after utilizing the Generalized Method of Moments (GMM)/Dynamic panel data estimation approaches. To determine the most fitted model between the fixed and random model, the study employed the Hausman model and its approved the random model as the best fitted model. According to the empirical results, energy consumption has a strong positive influence on GDP. This suggests that as the economy expands, so will energy consumption. The coefficients of labour and capital are significant, though labour implies negative effects. Also, GDP has a firm positive influence on energy consumption. This suggests that as the economy expands, so will energy consumption. Capital has a positive coefficient. This means that the countries are capital-intensive. The Labour coefficient is negative and statistically significant, indicating that capital is more energy intensive than labour-intensive generates the majority of GDP. This also implies that capital replaced labour in those countries. Further, the Dumitrescu Hurlin Panel Causality Tests revealed a bidirectional relationship between GDP and energy consumption. Thus, there is a bidirectional relationship between energy consumption and GDP across the entire continent. Energy policy formulations are likely to be the best long-term economic growth strategy in African countries.