Investigating the Finance-Energy-Growth trilogy in Sub-Saharan Africa: Evidence from the NARDL framework

Abstract

This paper analyzes the relationship between financial development, energy consumption, and economic growth in twenty-one (21) sub-Saharan African (SSA) countries by using the nonlinear autoregressive distributed lag (NARDL) framework during the period 1990Q1-2014Q4. First, the study reveals that financial development and energy consumption have asymmetrical effects on economic growth in most countries in the short and long-term. Second, positive shocks to financial development favor economic growth in only a few countries than the short-term negative shocks, whereas they have mixed effects in the long-term. Third, we found that negative shocks to energy consumption boost economic growth in most countries in the short-term, unlike the positive shocks, but the scenario has reversed in the long-term. Therefore, our study suggests that energy-saving policies, such as the use of renewable energies, should be implemented in specific SSA countries to promote sustainable development. In addition, policymakers should adopt an efficient allocation of credit to the private sector supporting productive investments. They should also consider these asymmetrical effects in the conduct of economic policies across SSA countries.