Energy consumption, human capital investment and economic growth in South Africa: a vector error correction model analysis

Abstract

AbstractThis paper investigates the dynamic causal relationship between energy consumption, human capital investment and economic growth in South Africa for the period 1960–2015 within the vector error correction model (VECM) framework. It was revealed that there is cointegration among the variables. The causality test result reveals that there exists a long‐run bi‐directional relationship between economic growth and energy consumption. While on the other hand, a long‐run unidirectional causal relationship was discovered running from economic growth and energy consumption to social and economic infrastructure investment. This justifies the government's massive investment in the energy sector which is aimed at meeting the increasing energy demand. However, the lack of feedback from social infrastructural investment may imply that the focus social infrastructure investment is not adequate to granger cause growth or due to high inequality and unemployment in the country which will require more investment attention for it to significantly affect growth. The government, therefore, should give priority to the provision of both social and economic infrastructure investment and implementation of policies that are aimed at human capital development through public empowerment so that they can support the economy instead of depending on the government.