The main purpose of this paper is to investigate the causality relationship between energy consumption and economic growth in four low-income countries in Sub-Saharan Africa using the econometrics in time-series methods. Along the estimation process, the author uses the annual data on energy consumption and real GDP per capita over the years of 1971 and 2011.
Should governments care about the relationship between energy consumption (EC) and economic growth (GR) in their home countries? It is important for policy makers to find out the causality relationship between EC and GR because the final result will help them to impose a proper energy policy. For instance, a government will pay more attention on a policy of stimulated energy use in the case where the reduction in EC will cause GR to go down as EC is found to have a positive impact on GR. Hence, the government will encourage people and firms to consume more energy in order to foster its growth since EC is also related to many factors such as unemployment, investment, savings and economic development. On the contrary, the government can carry out an energy conservation policy when there is no causality linkage between the variables or causality running from growth to energy use in that country. In such a case, if the government follows the appropriate policy it will unlikely face the severe economic turndown during the dramatic increase in energy prices.
Although a number of papers have focused on the causality relationship between energy consumption and economic growth over many countries from different continents, no clear consensus about this concern has been obtained. The differences in the estimation results mostly emerge due to the differences in countries’ conditions (i.e. economic developments, natural resources, consumption patterns, technology, and human capitals), applied econometrics techniques, and used time periods. Referring to the existing literature, there are typically four different outcomes related to the connection between EC and GR. These hypotheses are: “Conservation hypothesis” occurs when there is a one- way causality running from economic growth to energy consumption. “Growth hypothesis” exists if energy consumption causes economic growth, but GR does not cause EC. “Neutrality hypothesis” arises when there is no linkage between energy consumption and economic growth. “Feedback hypothesis” happens if there is a two-way causality between EC and GR (Ozturk, 2010).
In this paper, we plan to investigate the relationship between EC and GR in four low-income countries in Sub-Saharan Africa because of following reasons: 1) The published single and multi- country studies on the case of Sub-Saharan African countries have usually neglected the mentioned countries 2) The papers include Benin, Congo, Kenya and Zimbabwe have indicated different hypothesis in these countries 3) There has not been a recent multi-country study focuses on the low- income countries in Sub-Saharan Africa. Thus, the purpose of this paper is to fulfill this gap and make an empirical contribution into the economic growth-energy literature.