Total factor energy efficiency and economic development in Africa

Abstract

This paper presents an energy efficiency assessment of 46 African countries and analyzes possible bidirectional relationship between energy efficiency and economic development within a three-stage framework. In the first stage, energy efficiency is measured within a total factor framework using the slack-based measure with undesirable output and sub-regional comparisons are done. The second stage assesses the determinants of energy efficiency in Africa by way of a bootstrapped truncated regression. The third stage tests the reverse causal relationship between energy efficiency and economic development using 2-stage least squares. The results showed African countries to be on average, 56% energy efficient within the study period. Other African sub-regions could adopt the energy efficiency policies of North Africa as benchmark to improve energy efficiency. Economic development and technological progress are found to have significant positive effects on energy efficiency of African countries, while higher energy prices lead to higher inefficiency. Also, a bi-causal relationship is found to exist between total factor energy efficiency and economic development, giving support to the concept of sustainable development and confirming the International Energy Agency’s assertion on the positive macroeconomic impacts of energy efficiency. African countries are therefore, encouraged to invest in energy efficiency technologies and policies to drive sustainable economic development.