Investigation on the main contributors of economic growth in a dynamic heterogeneous panel data (DHPD) in Africa: evidence from their income classification.

Abstract

In investigating the key contributors (electricity consumption, foreign direct investment, carbon dioxide emissions, and population) of economic growth in Africa, this study clustered the selected countries into their income levels spanning from 1990 to 2018. Applying the Westerlund bootstrap co-integration unveiled, the employed variables have a long-run equilibrium association. Estimates from the dynamic common corrected effects revealed that a 1% rise in electricity consumption increases economic growth by 0.187%, 0.040%, and 0.511% in upper middle income, lower middle income, and low middle income, respectively. The elasticity of carbon dioxide emissions to economic growth is high in low-income countries than in the other two groupings. In contrast, a percentage rise in foreign direct investment heightened economic growth by 0.919% and 0.154% in upper middle income and lower middle income. As the growth hypothesis was established among the panel groupings, it points out that a country's economy is energy dependent. Thus, a rise in electricity consumption in Africa will lead to a surge in economic growth since energy usage is a direct input into the manufacturing process and/or an indirect input that complements labor and capital inputs. However, its ripple effects of polluting the environment need not be overlooked. These findings imply that electricity usage and economic growth are highly corrected. These approaches consider cross-sectional reliance into consideration; thus, the empirical findings have drawn some significant policy implications.