Energy consumption and economic growth nexus: Panel co-integration and causality tests for Sub-Saharan Africa

Abstract

This study reassesses the causal relationships between energy consumption and economic growth in 18 Sub-Saharan Africa  countries over the period 1980-2011. The Panel Unit Root Test results show that variables (both exogenous and endogenous) are stationary at their first difference with individual effects and individual linear trends, while the results of panel co-integration tests show that energy consumption and economic growth do have a stable long-run equilibrium relationship. There is unidirectional causality from energy consumption to economic growth in East and the Southern Africa Sub-region, which supports the growth hypothesis. As a result, the related authorities in the regions should take a special interest in different sources of energy and invest more in this sector, make suitable policies in this regard and find new alternative and cheap sources of energy. But, there is no causality between energy consumption and economic growth in Central and the West Africa Sub-region, which is in line with the neutrality hypothesis. In other words, both energy consumption and economic growth are neutral with respect to each other. Our results confirm the inconclusive nature of a causality relationship between energy consumption and economic growth.