Energy Consumption and Economic Growth: A Trivariate Framework of South Africa

Abstract

The study investigates the causal relationship between energy consumption and economic growth in South Africa, covering the period of 1980-2014. In a trivariate framework which includes electricity and inflation as additional variables by applying the Autoregressive Distributed Lag (ARDL) integration method. First unit root test was employed; results indicated that all variables were non-stationary at the level and stationary at their first differences, using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP). The results show a long-run relationship among the variables using the ARDL integration approach. The Granger causality test indicates a unidirectional running from inflation to economic growth, which supports the growth hypothesis as documented in the literature and there was no causality between electricity consumption and economic growth, supporting the neutrality hypothesis. Any policies concerning energy consumption should be re-evaluated to confirm that it will not disturb economic growth.