Revisiting the causality between electricity consumption and economic growth in South Africa: a bootstrap rolling-window approach

Abstract

The study revisits the causality relationship between electricity consumption per capita and economic growth per capita in South Africa for the period 1971-2009 using annual data and takes into consideration different time/sample periods in causal relationships using bootstrapping techniques in conjunction with rolling Granger non-causality tests. Full-sample Granger causality tests find no evidence of causal link between electricity consumption and economic growth. However, parameter stability tests indicate that there is instability in our VAR model and therefore findings from our full-sample Granger causality test cannot be relied upon. This motivates the use of bootstrap rolling-window estimation to investigate the electricity consumption-growth nexus which accounts for the time varying causal link between the two variables. The results indicate two sub-periods, 2002-2003 and 2005-2006, whereby electricity consumption had a causal effect on GDP. Apart for these brief sub periods, the results indicate no causality between the two series. However, these sub-sample periods go hand in hand with significant economic events that occurred in the South African electricity market during these sub-sample periods and the economy in general, indicating that the results can be attributed to real life events and not solely on data provided.