Evidence of Causality between Economic Growth and Electricity Consumption Expenditure in Uganda

Abstract

The aim of this study is to investigate the evidence of causality between economic growth and electricity consumption expenditure in Uganda for the period 1986 to 2017, aimed at contributing to literature on this topic and inform energy policy design in the country. Unlike previous studies on the causal link between energy consumption and economic growth, this paper introduces in capital stock as an intermittent variable in the causality framework. In this paper, we employed Johansen (1988, 1995) multivariate Cointegration and Vector Error Correction Model (VECM) based on Granger causality tests. Findings revealed a bi-directional causality between electricity consumption and economic growth in the long-term and distinct causal flow from economic growth to electricity consumption in the short-term and long-term Granger causality from capital stock to economic growth, with short-run feedback in the opposite direction. Therefore, the Government of Uganda should implement conservation policies only through reducing energy intensity and promoting efficient energy use to avoid decline in output but also strengthen its efforts towards capital accumulation in order to realize sustainable economic growth and meet the desired goal of sustainable energy for all.