"The Electricity-Growth Nexus: A Dynamic Panel Data Approach," by Nadia S. Ouedraogo

THE JOURNAL OF ENERGY
AND DEVELOPMENT
Nadia S. Ouedraogo,
The Electricity-Growth Nexus:

A Dynamic Panel Data Approach,
Volume 39, Number 2
Copyright 2014
THE ELECTRICITY-GROWTH NEXUS: A DYNAMIC

PANEL DATA APPROACH
Nadia S. Ouedraogo*
Introduction
odern energy access is a prerequisite for the economic, social, and technological process where it complements labor and capital in the production
process.1 As the most convenient form and a major source of modern energy,2
access to electricity positively contributes to capital and labor productivity, promotes export potentials of countries,3 creates employment,4 aids in the process of
meeting residential and domestic needs, decreases the poverty level,5 and, ultimately, improves socioeconomic development.6
The electricity supply sector has played a crucial role in the development of
economically advanced countries as a key input in their industrial, technological,
and scientific advancement and also as a pivotal factor in improving the quality of
life of their people.7 In addition, increasing electricity use has been identified as an
important source of productivity improvement in developed countries and it is the
sector that is currently fuelling the new digital economy.8 Further, R. Ferguson
*Nadia S. Ouedraogo earned a masters degree in international and development economics and
finance, and a Ph.D. in energy and environment economics and natural resources management from
University Paris-Dauphine. Her doctoral dissertation addressed the effects of energy vulnerability,
energy poverty, oil price volatility, and climate change on socioeconomic development of poor
countries. She was formerly a researcher and teaching assistant at the Centre of Geopolitics for
Energy and Raw Materials (CGEMP) of University Paris-Dauphine. Her research interests include
energy poverty, energy efficiency and the development of renewables, financial and energy markets,
the water-energy nexus, extractive industries and rent-seeking activities, climate change mitigation
policies, sustainable development, inclusive green growth, and development financing. The authors
works have appeared in Energy, Energy Economics, and in The New Energy Crisis: Climate,
Economics, and Geopolitics (London: Palgrave, 2013).
The Journal of Energy and Development, Vol. 39, Nos. 1 and 2
Copyright 2014 by the International Research Center for Energy and Economic Development
(ICEED). All rights reserved.
229
230
THE JOURNAL OF ENERGY AND DEVELOPMENT
et al. found that for developed countries there is a strong correlation between
increases in wealth over time and increases in energy consumption.9 Moreover,
there is a stronger correlation between electricity use and wealth creation than
there is between total energy use and wealth.10 Hence, the lack of access to
electricity is a serious hindrance not only to human, social, and economic development but also to technological progress.
Nevertheless, there are still billions of people without access to electricity or
cooking facilities. A quarter of humanity still lacks access to electricity worldwide, almost all of whom live in developing countries.11 Yet, given the importance
of electricity to wealth creation and economic growth, the ambitious goals that
have been set to eradicate extreme poverty can never be fully reached without
acknowledging and confronting electricity deprivation. Thus, electricity access is
increasingly at the forefront of governments concerns for the poorest countries
and has given a renewed stimulus to research interest in the linkages between
energyspecifically electricityand economic performance at a national or regional level.
Indeed, the existence and the direction of a causal relationship between electricity consumption and economic growth have significant implications for
a government in the design and implementation of its energy policy.12 The directions of this causal relationship could be categorized into four types, each of
which has important implications for electricity policy.
First, if there is unidirectional causality running from electricity consumption
to economic growth, a reduction in electricity consumption may lead to a fall in
economic growth.
Second, if unidirectional causality runs from economic growth to electricity
consumption, it implies that policies for reducing electricity consumption may be
implemented with little or no adverse effects on economic growth.
Third, if bidirectional causality is detected, economic growth may stimulate the
demand for electricity while, in turn, greater electricity consumption may induce
economic growth. Electricity consumption and economic growth complement
each other and energy conservation measures may negatively affect economic
growth.
Last, the absence of causality in either direction indicates that policies for
increasing or reducing electricity consumption do not affect economic growth and
an increase in real income may not affect electricity consumption.
Therefore, knowledge of the direction of causality between electricity consumption and economic growth is of primary importance if appropriate energy
policies and measures to improve electricity access are to be devised. Numerous
studies have been undertaken over the past decade to investigate the relationship
and direction of causality between electricity consumption and economic variables
such as gross national product (GNP), gross domestic product (GDP), income,
employment, or energy prices in several countries.
SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS
231
Although the relation between economic growth and electricity consumption

has been investigated elaborately in numerous studies for different nations spanning various time periods, case studies for Sub-Saharan African are rare. The main
goal of this paper is to fill the gap by examining any causal effect between percapita electricity consumption and real GDP for a group of 15 developing countries in Sub-Saharan Africa. These countries are Benin, Burkina Faso, Cape Verde,
Ivory Coast, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria,
Senegal, Sierra Leone, and Togo.
The contribution of our study to the existing literature on the causal relationship between electricity consumption and economic growth among Sub-Saharan
African countries is based upon two differentiating aspects. First, the majority of
the existing literature on this issue with regard to Africa is single country studies,
and the problem of short data periods in single country studies further reduces the
power of unit root and cointegration tests to provide reliable results. In our study,
we employ panel unit root and panel cointegration tests that combine cross-section
and time-series data and allow for heterogeneity across the countries to increase
the reliability of their results.13 Second, our study contributes to the existing panelbased studies. To the best of our knowledge, there are only a few studies using
panel unit root and cointegration approaches to examine causality between electricity and economic growth in a large group of developing countries in Africa.
The remainder of the paper is organized as follows. We begin with a discussion
of the electricity sector of Sub-Saharan African countries. This is followed by
a review of the literature on causality studies of electricity consumption and economic growth. An overview of the methodology adopted and the data employed is
presented in the subsequent section, which is followed by an explanation of the
empirical findings. Some policy implications and concluding remarks are made in
the final portion.
Background: The Sub-Saharan African Energy Situation

The use of energy around the world is very uneven. Sub-Saharan African
countries (SSA) represent approximately 11 percent of the global population but
consume only 3 percent of the worlds commercial energy. Therefore, SSA has the
lowest per-capita energy consumption in the world. Its per-capita energy consumption is 0.59 tons of oil equivalent (toe) per year versus the global average of
1.76 toe, 4.31 toe in Western Europe, and 8.46 toe in North America.
The International Energy Agency (IEA) predicts that under a business-asusual scenario, the problem will persist and even deepen in the longer term. The
average energy consumption of SSA should continue to fall (from 0.47 toe per
year) due to population growththe average population growth rate is about 1.9
percent per year in Africa and 1 percent in the rest of the world. The continents
232
total consumption is expected to reach 687 million toe for 1.5 billion people in
2030 (or 5.9 percent of global consumption for 17.6 percent of the planets
population).14
In addition, electricity deprivation is by far most prevalent in Sub-Saharan
Africa (SSA) compared with other parts of the world. Around 1.5 billion people,
more than one-fifth of the worlds population, still do not have access to electricity
and more than 500 million of them live in SSA, mainly in rural areas. Thus, SSA
clearly has the lowest rate of electrification in the world.
While transition economies and countries belonging to the Organization for
Economic Co-operation and Development (OECD) have virtually universal access, North Africa has an access rate of 99 percent, Latin America 93 percent, East
Asia and the Pacific 90 percent, and the Middle East 89 percent. By contrast, South
Asia has an electrification rate of 60 percent and Sub-Saharan Africa only 29
percent.15 The populations without electricity in these two regions account for 83
percent of the total world population without electricity.
Moreover, inequalities in electricity access exist between urban and rural areas
(table 1). The access rate to electricity in rural areas is only 16 percent for SSA
against a world average of 65 percent (25 percent for India, 74 percent for Latin
America, 45 percent for South East Asia, and 80 percent for China).
Table 1
ACCESS TO ELECTRICITY, 2009
Region
Africa
North Africa
Sub-Saharan Africa
Developing Asia
China & East Asia
South Asia
Latin America
Middle East
Developing countries
Transition economies &
OECD
World
a
Population
without
Electricity
(in millions)
Electrification
Rate
(in %)
Urban
Electrification
Rate
(in %)
Rural
Electrification
Rate
(in %)
587
2
585
799
186
612
31
22
1,438
41.9
99.0
30.5
78.1
90.8
62.2
93.4
89.5
73.0
68.9
99.6
59.9
93.9
96.4
89.1
98.8
98.6
90.7
25.0
98.4
14.3
68.8
86.5
51.2
74.0
72.2
60.2
3
1,441
99.8
78.9
100.0
93.6
99.5
65.1
OECD = Organization for Economic Cooperation and Development.

Source: International Energy Agency (IEA), World Energy Outlook 2011 (Paris: IEA, 2011).
233
Furthermore, there are also persistent inequalities in electricity access across

regions in Sub-Saharan Africa, especially to the detriment of those nations in the
western portion of the continent. Southern Africa accounts for almost half of the
consumption of the continent and North Africa for 35 percent. In some Western
African countries 80 percent of the population has no access to electricity (see
table 2).
Without a major change, the situation probably will continue to deteriorate
further. In regard to the future access to electricity, the IEA predicts that by the
year 2030 the number of people without access to electricity is going to increase
from about 561 million (in 2008) to 600 million and those using biomass in SSA
will rise from 615 million to over 700 million.
These differences in electrification levels reflect the low level of development
of SSA. States with low-levels of income tend to have low energy access, limited
access to modern energy (petroleum products and electricity), and a high proportion of the population relying on traditional biomass. At the same time, limited
and unreliable energy access is a major impediment to economic growth.16 Lack of
access to electricity imposes significant costs on households and can limit economic, educational, and social activities; moreover, unreliable electricity supplies
impose direct costs on African economies in terms of lost productive output.17
Increasing supply and improving reliability will facilitate economic growth and
increase income levels.
Table 2
REGIONAL ELECTRICITY CONSUMPTION PER CAPITA AND
a
ELECTRIFICATION RATES IN AFRICA, 2008
Regions
North Africa
West Africa
Central Africa
East Africa
Southern Africa
Southern Africa,
(South Africa excluded)
a
Rural
Urban
Total
Electrification Electrification Electrification
Electricity
Rate
Rate
Rate
Consumption
(in %)
(in %)
(in %)
(kWh/hbt/year)
961
128
92
351
1,010
94
40
18
41
37
97
64
37
43
46
93
19
6
30
16
254
15
36
kWh/hbt/year = kilowatt-hours per inhabitant per year.

Source: Calculated by the author based upon the World Bank, World Bank Key Development
Data & Statistics (Washington, D.C.: The World Bank, 2009) and the International Energy Agency
(IEA), World Energy Outlook 2010 (Paris: IEA, 2010).
234
Literature Survey on the Electricity-Growth Nexus

The causal relationship between energy consumption and economic growth has
been investigated extensively since the seminal study of J. Kraft and A. Kraft;
however, a consensus has not been reached among energy economists.18 While
a variety of studies have been conducted for numerous countries utilizing different
econometric methodologies, time periods, and proxy variables, the evidence from
empirical research is still providing mixed results and controversy in terms of the
direction of the causality and the intensity of the impacts of energy consumption
on economic growth.
The empirical findings on the relationship between electricity consumption and
economic growth also show a lack of consensus among economists. Indeed, the
empirical evidence is inconclusive with regard to causality issues between electricity consumption and economic growth. Several studies support bidirectional or
unidirectional causality, while other investigations find no evidence of causality.
For example, the existence of a causality running from electricity consumption
to economic growth is found by A. Shiu and P. Lam for China as a whole and by
Y. Wolde-Rufael for the region of Shanghai.19 Y. Wolde-Rufael also has found
a causality running from electricity to economic growth for Benin, the Democratic
Republic of Congo, and Tunisia.20 Most recently, P. K. Narayan and A. Prasad
have detected the same relationship in Australia, the Czech Republic, Iceland,
Italy, Portugal, and the Slovak Republic.21
On the other hand, unidirectional causality runs from economic growth to
electricity consumption as revealed by S. Ghosh for India and Y. Wolde-Rufael for
Cameron, Ghana, Nigeria, Senegal, Zambia, and Zimbabwe.22 K. Fatai et al. and
P. K. Narayan and R. Smyth have found this type of relationship for Australia.23
Further, P. Mozumder and A. Marathe have addressed the case of Bangladesh.24
I. Ouedraogo has found univariate causality running from economic growth to
electricity consumption with significant feedback for Burkina Faso.25
In contrast, H. Yang, C. Jumbe, R. Morimoto and C. Hope, S.-H. Yoo, and P. K.
Narayan and S. Prasad have found bidirectional causality between electricity consumption and economic growth in Taiwan, Malawi, Sri Lanka, Korea, and the
United Kingdom, respectively.26 More recently, N. Odhiambo has investigated the
relationship between electricity consumption, employment, and economic growth
for South Africa.27 The results of his trivariate causality study indicate bidirectional
causality between electricity consumption, employment, and economic growth.
Lastly, the absence of causality between electricity consumption and economic
growth is found for Algeria, the Republic of Congo, Kenya, South Africa, and
Sudan by Y. Wolde-Rufael.28
The recent existing literature on the causal relationship between electricity and
growth can be summarized in two categories: panel studies and country case
studies (selected works are given in table 3).29
Table 3
Country
Methodology
Results
19701986
19541997
19701999
19712002
19711999
19722003
19632005
19802006
19712006
19712006
19632008
H. Yang (2000)
C. Jumbe (2004)
S. Yoo and Y. Kim

(2006)
P. Mozumder and A.
Marathe (2007)
C. F. Tang (2009)
J.-H. Yuan et al. (2008)
A. Akinlo (2009)
N. Odhiambo (2009a)
N. Odhiambo (2009b)
I. Ouedraogo (2010)
Burkina Faso
South Africa
Tanzania
Nigeria
Taiwan
Malaysia
Bangladesh
Indonesia
Malawi
Taiwan
Jamaica
ELEC!GDP
ELEC!GDP
Johansen cointegration,
VEC specific tests
Johansen-Juselius,
cointegration, VECM
ARDL Bounds testing
Granger causality
GDP !ELEC
ELEC4GDP
ELEC!GDP
ELEC4GDP
ECM based F-test,

ARDL test
ARDL Bounds test
ELEC!GDP
ELEC!GDP
Cointegration test and

VECM
Engle Granger, VAR
GDP!ELEC (Granger causality)

ELEC4GDP (ECM)
ELEC4GDP
Standard Granger
causality test, Hsiaos
Granger
Granger causality, ECM
ELEC!GDP
Granger causality
Study survey on electricity consumption (ELEC)- growth nexus for country-specific studies
Period
H. Ramcharran (1990)
Authors (Year)
(continued)
SUMMARY OF LITERATURE REVIEW ON CAUSALITY BETWEEN ELECTRICITY CONSUMPTION AND ECONOMIC GROWTH

235
Table 3 (continued)
Period
Country
Methodology
Results
19712001
19712002
19712001
Y. Wolde-Rufael
(2006)
S.-H. Yoo (2006)
S. Chen et al. (2007)
GDP!ELEC (Indonesia, Thailand)

ELEC4GDP (Malaysia, Singapore)
Toda-Yamamoto test
Standard Granger
causality test and
Hsiaos version of
Granger causality
method
Pedroni panel
cointegration, ECM,
Panel causality test
17 African
countries
Indonesia,
Malaysia,
Singapore,
Thailand
China,
Indonesia, Hong
Kong, India,
Malaysia,
Korea, Taiwan,
Philippines,
Singapore,
Thailand
(continued)
ELEC4GDP (for all countries)

No causality (China, Taiwan, Thailand)
GDP!ELEC (India, Malaysia, Korea,
Philippines, Singapore)
ELEC!GDP (Hong Kong, Indonesia)
GDP!ELEC (Cameroon, Ghana,

Nigeria, Senegal, Zambia, Zimbabwe)
ELEC4GDP (Egypt, Gabon,
Morocco)
ELEC!GDP (Benin, Congo DR,
Tunisia)
GDP;ELEC (Algeria, Congo
Republic, Kenya, South Africa, Sudan)
Study survey of empirical studies on electricity consumption and economic growth nexus for multi-country studies
Authors (Year)
236
Table 3 (continued)
P. K. Narayan and
Smyth (2009)
Bootstrapped causality
testing approach
Panel cointegration,
VECM
Iran, Israel,
Kuwait, Oman,
Syria, Saudi
Arabia
Methodology
30 OECD
countries
Country
ELEC4GDP
ELEC!GDP (Australia, Italy, Slovak

Republic, Czech Republic, Portugal)
GDP!ELEC (Finland, Hungary,
Netherlands)
ELEC4GDP (Iceland, Korea, United
Kingdom)
No causality (remaining 19 countries)
Results
GDP!ELEC indicates that the causality runs from growth to electricity consumption; ELEC!GDP indicates that the causality runs from
electricity consumption to growth; ELEC4GDP indicates that bidirectional causality exists between electricity consumption and growth;
GDP;ELEC indicates that no causality exists between electricity consumption and growth; VAR = vector autoregressive model; VECM = vector
error-correction model; ARDL = autoregressive distributed lag; and ECM = error-correction model.
Sources: H. Ramcharran, Electricity Consumption and Economic Growth in Jamaica, Energy Economics, vol. 12, no. 1 (1990), pp. 6570; H. Y.
Yang, A Note on the Causal Relationship between Energy and GDP in Taiwan, Energy Economics, vol. 22, no. 3 (2000), pp. 30917; C. B. L. Jumbe,
Cointegration and Causality between Electricity Consumption and GDP: Empirical Evidence from Malawi, Energy Economics, vol. 26, no. 1 (2004),
pp. 618; S. H. Yoo and Y. Kim, Electricity Generation and Economic Growth in Indonesia, Energy, vol. 31, no. 14 (2006), pp. 289099;
P. Mozumder and A. Marathe, Causality Relationship between Electricity Consumption and GDP in Bangladesh, Energy Policy, vol. 35, no. 1
(2007), pp. 395402; C. F. Tang, Electricity Consumption, Income, Foreign Direct Investment, and Population in Malaysia: New Evidence From
Multivariate Framework Analysis, Journal of Economic Studies, vol. 36, no. 4 (2009), pp. 37182; J.-H. Yuan, J.-G. Kang, C.-H. Zhao, and Z.-G. Hu,
Energy Consumption and Economic Growth: Evidence from China at Both Aggregated and Disaggregated Levels, Energy Economics, vol. 30, no. 6
(2008), pp. 307794; A. E. Akinlo, Electricity Consumption and Economic Growth in Nigeria: Evidence from Cointegration and Co-feature
Analysis, Journal of Policy Modeling, vol. 31, no. 5 (2009), pp. 68193; N. M. Odhiambo, Energy Consumption and Economic Growth Nexus in
Tanzania: An ARDL Bounds Testing Approach, Energy Policy vol. 37, no. 2 (2009a), pp. 61722; N. M. Odhiambo, Electricity Consumption and
19742002
P. K. Narayan and A.
Prasad (2008)
Period
19712002
19702002
19652002
19602002
Authors (Year)

237
Economic Growth in South Africa: A Trivariate Causality Test, Energy Economics, vol. 31, no. 5 (2009b), pp. 63540; N. M. Odhiambo, Savings and
Economic Growth in South Africa: A Multivariate Causality Test, Journal of Policy Modeling, vol. 31, no. 5 (2009c), pp. 70818; I. M. Ouedraogo,
Electricity Consumption and Economic Growth in Burkina Faso: A Cointegration Analysis, Energy Economics, vol. 32, no. 3 (2010), pp. 52431;
Y. W. Wolde-Rufael, Electricity Consumption and Economic Growth: A Time Series Experience for 17 African Countries, Energy Policy vol. 34,
no. 10 (2006), pp. 1106114; S.-H. Yoo, The Causal Relationship between Electricity Consumption and Economic Growth in the ASEAN Countries,
Energy Policy, vol. 34, no. 18 (2006), pp. 3573582; S. T. Chen, H. I. Kuo, and C.C. Chen, The Relationship between GDP and Electricity
Consumption in 10 Asian Countries, Energy Policy, vol. 35, no. 4 (2007), pp. 2611621; P. K. Narayan and A. Prasad, Electricity ConsumptionReal
GDP Causality Nexus: Evidence from a Bootstrapped Causality Test for 30 OECD Countries, Energy Policy, vol. 36, no. 2 (2008), pp. 91018; and
P. K. Narayan and B. Singh, The Electricity Consumption and GDP Nexus for the Fiji Islands, Energy Economics, vol. 29, no. 6 (2007), pp.
1141150.
238
239
A general observation from these studies is that prior research on the electricity
consumptioneconomic growth relationship for developing countries is mainly
based on time-series data of individual countries. The panel unit roots and cointegration techniques of Granger causality are used predominately to examine the
nexus between electricity consumption and economic growth either for developed
countries, emerging markets, or for a mixed panel of countries.
However, the casusal relationships present mixed and conflicting results across
different developing countries when time-series analysis is used for each single
countrys data. The short time spans of individual data sets from developing
countries would reduce the power of the unit root, cointegration, and causality
tests, thereby giving rise to distorted and mixed results.30 Therefore, the relationships between GDP and electricity consumption in a panel data set in developing countries, especially in African countries, need to be examined.
Data and Methodology

Data: As mentioned above, this study examines the causal relationship between
electricity consumption and economic growth in 15 developing countries in
Africa: Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea,
Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.
The annual data used cover the period from 1980 to 2008.
The reasons we selected these 15 countries are because they are among the least
developed and least electrified countries in the world and all of them are in the
western part of the African continent. Indeed, the West Africa states already have
initiated ambitious programs for cooperation in energy development through the
pooling of energy resources that aim to increase access to electricity. Even though
such an integrated regional energy policy exists in other regions, the western region has the most ambitious and advanced plan.
Thus, the findings of studies such as ours can serve as a basis for discussion on the
appropriate design and implementation of electricity policies that will increase regional electrification and could serve as an example for the other areas of the continent.
The variables used in the models are as follows: electricity consumption per
capita (hereafter referred to as ELEC), real GDP per capita (GDP), and oil price
(Px). Electricity consumption is expressed in terms of kilowatt hours (kWh) per
capita. Real GDP per capita is used as a proxy for economic growth. The real GDP
series is in constant 2000 U.S. dollars.
GDP data are obtained from the World Development Index of the World Bank
and electricity data from ENERDATA. The international energy price is in U.S.
dollars for Brent from BPs Statistical Review of World Energy 2010.
240
All of the series are in natural logarithm form, and the start and end of the
period of the series are based on the data availability for all the series, especially
the availability of electricity data.
Table 4, figure 1, and figure 2 show an overview of GDP and electricity trends,
access to electricity, and per-capita electricity consumption, respectively, over the
period 19802008 for the selected nations of the panel.
Econometric Methodology: The test of the causal relationship between economic
growth (GDP) and energy consumption is conducted in three stages. First, we test
for the order of integration in the GDP, electricity consumption, and price series.
Next, we employ panel cointegration tests to examine the long-run relationships
among the variables. Finally, we use dynamic panel causality tests to evaluate the
short-run cointegration and the direction of causality among the variables.
Panel Unit Root Tests: To conduct the Granger causality test, the time series of
the variables are required to be stationary. In the context of a time series, stationary refers to a condition wherein the series have constant mean and constant
variance. Most of the time-series data reflect trend, cycle, and/or seasonality. As
the use of non-stationary data in causality tests can yield spurious causality results,
these deterministic patterns must be removed to make the series stationary.31
Therefore, following Engle and Granger, we first test the unit roots of variables to
confirm the stationarity of each of them.32 If any variable is found to be nonstationary, we must compute the differences and then apply the causality test with
the differenced data.
To check whether or not the variables under consideration are stationary, this
study uses five different panel unit roots tests including A. Levin, C.-F. Lin, and
C.-S. Chu; K. Im, M. Pesaran, and Y. Shin, referred to as IPS; G. S. Maddala and
S. Wu; I. Choi; J. Breitung; and K. Hadri.33 All tests were used to check the
robustness of the results.
For each estimation technique, the unit root is testing for a model with a constant
and a deterministic trend stationarity and a model with a constant and no trend.
The Levin, Lin, and Chu test (LLC) proceeds from the assumption of a homogenous panel; bi is identical across countries. The model is expressed as follows:
Xpi
Dyit ai bi yit1
p Dyitj eit :
1
j1 i
D is the first difference operator, yit is the series of observations for country i,
and t = 1,,T time periods. The test has the null hypothesis of bi = b = 0 for all
i against the alternative of H1 = b = bi < 0, which presumes that all series are
stationary.
There are two major shortcomings of the LLC test. First, it relies on the assumption of the independence across units of panel where a cross sectional
241
Table 4
SUMMARY STATISTICS OF ELECTRICITY CONSUMPTION PER CAPITA (ELEC)
AND GROSS DOMESTIC PRODUCT PER CAPITA (GDP) FOR THE
15 SELECTED COUNTRIES OVER THE PERIOD 19802008
Description
Country
Variable
Minimum
Maximum
Standard Deviation
Benin
GDP
ELEC
0.463
17.400
0.565
70.584
0.0323096
17.646825
Burkina Faso
GDP
ELEC
0.25
15.177
0.407
43.443
0.0501301
10.857793
Cape Verde
GDP
ELEC
0.907
34.036
2.534
371.700
0.4445242
123.25771
Ivory Coast
GDP
ELEC
0.832
118.044
1.442
180.977
0.1743388
25.832702
Gambia
GDP
ELEC
0.273
30.669
0.333
70.941
0.0149846
15.25994
Ghana
GDP
ELEC
0.314
86.912
0.551
399.296
0.0610203
69.867851
Guinea
GDP
ELEC
0.282
63.275
0.372
145.445
0.0262428
22.269172
Guinea Bissau
GDP
ELEC
0.204
14.962
0.338
42.494
0.0369622
14.32396
Liberia
GDP
ELEC
0.074
76.358
0.869
425.530
0.2700867
147.70968
Mali
GDP
ELEC
0.322
14.185
0.474
98.040
0.0480277
26.526598
Niger
GDP
ELEC
0.242
31.021
0.398
40.384
0.0447318
8.5324884
Nigeria
GDP
ELEC
0.562
47.933
0.883
132.699
0.0810961
26.391582
Senegal
GDP
ELEC
0.637
85.088
0.783
145.538
0.0403951
19.50863
Sierra Leone
GDP
ELEC
0.149
28.105
0.297
63.119
0.0436552
12.400438
Togo
GDP
ELEC
0.294
61.415
0.494
103.236
0.03893
14.674989
Source: Based on author calculations from the ENERDATA, www.enerdata.net.
242

Figure 1
ELECTRICITY ACCESS IN THE 15 SELECTED SUB-SAHARAN AFRICAN COUNTRIES, 2010

(as a percentage of the total population)
Source: Authors calculations based on ENERDATA, www.enerdata.net, 2011.
correlation may be present.34 Second, autoregressive parameters are considered to

be identical across the panel in this model.
Im, Persan, and Shin (IPS) broadened the LLC test to overcome the second
limitation by developing a unit root test for dynamic heterogeneous panels based on
the mean of individual unit root statistics (their test structure allows the bi to differ
among individuals). This assumption is more realistic because heterogeneity could
arise from different economic conditions and levels of development in each country.35 IPS propose averaging the augmented DickeyFuller (ADF) tests, that is:
Xpi
b Dei;tj mi;t :
2
Dei;t ai
j1 i;j
Substituting this expression into equation (1) we get,
Xpi
yit ai bi yi;t 1
p Dei;tj xit di Deit
j1 j
where ri is the number of lags in the ADF regression. The null hypothesis is that
each series in the panel contains a unit root, i.e., H0: bi = 0 for all i. The alternative
hypothesis is that at least one of the individual series in the panel is stationary, i.e.,
243
Figure 2
PER-CAPITA ELECTRICITY CONSUMPTION AND GDP IN THE 15 SELECTED
SUB-SAHARAN AFRICAN COUNTRIES, 2008
Source: Authors calculations based on ENERDATA, www.enerdata.net, 2011.
H1: b1 < 0 for at least one i. IPS define a t-bar statistic as the average of the
individual ADF statistic:
Xi
t 1=N
t tbi
4
n1
where tbi is the individual t-statistic for testing H 0: bi = 1 for all i in equation
(4). The t-bar statistic has been shown to be normally distributed under
H 0 and the critical values for given values of N and T are provided in
K. Im et al.36
J. Breitung showed that when individual-specific trends are included, the IPS
test can suffer from a loss of power due to bias correction.37 He proposes an alternative test unit root, which corrects for the loss of power and shows that it has
greater power than the IPS test. The null hypothesis of Breitungs test is that the
panel series exhibit non-stationary difference and the alternative hypothesis assumes that the panel series is stationary.
244
In contrast to the IPS test, which is a parametric and asymptotic test, G.

Maddala and S. Wu and I. Choi proposed a non-parametric and exact test that is
based on the Fisher test, and combining the P-values from individual unit root
tests.38 This test is superior compared to the IPS test.39 Its advantage is that its
value does not depend on different lag lengths in the individual ADF regressions.
The test statistic is expressed as follows:
XN
ln :
5
p 2
i1 bi
The null hypothesis is that each series in the panel has a unit root, i.e., H0: bi =
0 for all i and the alternative hypothesis is that not all of the individual series has
a unit root, i.e., H1: bi < 0 for i = 1,.., N1 and ri = 0 for i = N1 + 1,,N. In addition,
I. Choi demonstrated that40
.p XN
Z1
N
F1 pi ; N 0; 1
6
i1
where F1 is the inverse of the normal cumulative distribution function.
Finally, we employ the Hadri test that is a residual-based Lagrange Multiplier
(LM) test, where the null hypothesis is that the time series for each cross-section
member are stationary around a deterministic trend.41
The difference between the Hadri test and the other tests above is the null
hypothesis. The Hadri test uses a reverse null hypothesis and the panel test statistic
is given as
p
N LMi j
! N 0; 1; for i 1 and 2
7
Z
z

P
N
2
2
where LMi = 1=N

; j = 1/6; and j = 1/45 for the onlyS
t
=
T
=f
i
i0
i=1
constant model, otherwise j = 1/15 and j = 11/6300; and fi0 is the average of the
individual estimators of the residual spectrum.
Panel Cointegration: After testing for unit roots, the long-run relationship between electricity consumption and GDP is investigated, using the panel cointegration technique derived from the work of P. Pedroni.42 The Pedroni technique
allows for heterogeneity among individual members of the panel. The cointegration relationship is specified as follows:
LGDPit a9it b9i t d1i9 LEC d2i9 LPX e9it
The observable variables are in natural logarithm form; t = 1,,T time periods;
i = 1,.....N members of the panel; ai is the country-specific effects; di is the deterministic time trends; and eit is the estimated residual. The estimated residual
245
indicates the deviation from the long-run relationship. With the null of no cointegration, the panel cointegration is essentially a test of unit roots in the estimated
residuals of the panel. P. Pedroni has shown that there are seven different statistics
for this test.43 The first four statistics (panel v-statistic, panel r-statistic, panel PPstatistic, and panel ADF-statistic) are panel cointegration statistics and are based
on the within approach. The last three statistics (group rho-statistic, group PPstatistic, and group ADF-statistic) are group panel cointegration statistics and are
based on the between approach. In the presence of a cointegrating relationship, the
residuals are expected to be stationary. The panel v-test is a one-sided test; the null
of no cointegration is rejected when the test has a large positive value. The other
statistics reject the null hypothesis of no cointegration when they have large
negative values.
In order to avoid spurious regression results, in addition to the Pedroni cointegration test, the Fisher hypothesis utilizing the Johansen-Juselius cointegration
procedure is undertaken. The Fisher test is a non-parametric test that does not
assume homogeneity in the coefficients; it aggregates the p-values of the individual Johansen maximum likelihood cointegration test statistics. It allows
assessing the presence of long-run cointegrating relationships between the variable of interest both at panel and country level.
Estimating the Long-Run Cointegration Relationship in a Panel Context: If the variables are cointegrated, the long-run relationship between electricity consumption
and GDP is estimated by using the fully-modified ordinary least squares (FMOLS)
estimators. FMOLS is a non-parametric approach that takes into account the
possible correlation between the error term and the first differences of the regressors, as well as the presence of a constant term, to deal with corrections for
serial correlation.
Our model is based on the regression such as suggested in P. Pedroni:44
Xki
Yit ai bi LELECit
g DLELECitk mit ; i 1; 2; . . . . . . . . . ; T
kk ik
i
9
where Yit is the log of GDP per capita and LELECit is the log of electricity consumption per capita. Yit and ELECit are cointegrated with slopes bi, which may or
may not be homogeneous across i.
^ it DELECit be a stationary vector conFollowing from equation (5), let jit = m
sisting of the estimated residuals from the cointegrating regression and differences
in electricity consumption. h P
P
i
T
T
j
j
the long-run covariance
Also let Wit = limT !E T1
iT
it
t1
t1
for this vector process that can be decomposed into Wit = W0it + Gi + Gi = where
W0it is the contemporaneous covariance and Gi is a weighted sum of autocovariances. The FMOLS estimators are given as
246
bfmols N 1
XN hXT
2 i1
ELEC

ELEC
it
i
1
t1
hXT
i

^
y
ELEC

ELEC

T
g
it
i
it
i :
t1
10
Panel Granger Causality Tests: For the countries without any evidence of cointegration, the standard Granger causality test is performed but the error-correction
model (ECM) approach is applied if cointegration is found, to determine the direction of causality between GDP and ELEC. To test for Granger causality in the
long-run relationship, the residuals from the long-run model are first estimated,
and then the estimated residuals are fitting as a right-hand variable in a dynamic
error-correction model. The dynamic error-correction model used is specified as
follows:
Xq
Xq
u
DLGDP
u DLELECitk
DLGDPit a1i
11ik
itk
k1 12ik
Xq k1
u DLPXitk l1 ECit1 m1it

k1 13ik
Xq
Xq
u
DLELEC
u DLGDPitk
DLELECit a2i
21ik
itk
k1 22ik
Xq k1
u DLPXitk l2 ECit1 m2it :

k1 23ik
11a
11b
D is the difference operator and ECT the lagged error-correction term derived from
the long-run cointegrating relationship. ai, ui, and li are adjustment coefficients
and m is the serially uncorrected error term.
The sources of causation are identified by testing for the significance of the
coefficients on the lagged dependent variables for the equations (11a) and (11b).
First, the weak Granger causality will be evaluated by testing HA = u12= u13 for
all i in equation (11a), or HB = u22= u23 for all i in equation (11b).
The weak Granger causality is referred to as the short-run causality because the
dependent variable responds only to the short-term shocks to the stochastic environment.45 The long-run causality can be tested by looking at the significance of
the coefficient of the error-correction term for the equations (11a) and (11b).
Second, the strong Granger causality test will be performed by testing the joint
hypothesis of HA: l1 = u12= u13 i in equation (11a) and HB: l2= u22= u23 i in
equation (11b). The joint test indicates which variables bear the burden of short-run
adjustment to re-establish long-run equilibrium following a shock to the system.46
Finally, to test for the presence of a long-run relationship, we test: HA: l1 =
0 for all i in equation (11a) and HB: l2 = 0 for all i in equation (11b). If li is zero,
then GDP does not respond to deviations from the long-run equilibrium in the
previous period. l1 = l2 = 0 for all i is equivalent to both Granger non-causality in
the long run and the weak exogeneity.
247
Results and Policy Implications

The Results of the Unit Root Tests: Table 5 reports the results of the IPS, LLC,
Maddala and Wu, and Hadri panel unit root tests for the level and first differenced
series of variables LGDP, LELEC, and LPX. All the variables are found to be nonstationary (integrated of order one, I(1)) since the null hypothesis of a unit root
cannot be rejected for the variables in level form at the 1-percent level of significance. Therefore, the panel cointegration tests can be performed.
The Results of Panel Cointegration Tests: Table 6 shows the results of the panel
cointegration tests. The tests reject the null hypothesis of no cointegration at the
1-percent significance level. Thus, there exists a long-run relationship between
GDP, electricity consumption, and prices.
As cointegrating relations exist for GDP, ELEC, and PX, the Johansen-Fisher
test for panel of countries and for individual countries are used to examine the
cointegrating vectors. Before performing the Johansen cointegration tests, the
Akaike information criterion (AIC) and the Schwarz information criterion (SIC)
are performed to determine the optimum lag length. The result indicates an optimum lag length of 2.
Tables 7 and 8 provide a summary of the results of the trace and maximum
Eigen value cointegration tests. The results of the Fisher tests support the
presence of at least one cointegrating vectors among the three variables for the
entire panel. For the individual countries, the results overall indicate at least
one cointegrating relationship in half of the cases: Cape Verde, Gambia,
Ghana, Guinea Bissau, Niger, Nigeria, and Togo. Our results show that there
are cointegration relationships among GDP, ELEC, and PX variables for the
entire panel and for individual countries. The FMOLS estimation is used to
estimate these relationships.
The FMOLS Estimation: Equation (10) has been estimated by the FMOLS where
the dependent variables are electricity consumptions. Intra-dimension as well as
between dimensions of the entire panel are modeled. The intra-dimension (within)
takes into account the heterogeneity of individuals in their temporal dimension
and/or individual, while the within estimator eliminates the individual effects
(persistent differences between the countries over the period), favoring the temporal information. For our panel of countries, the within-dimension results do not
differ from between-dimension results.
Table 9 reports the estimated long-run elasticities for the panel as well as individual countries. The coefficient of the panel estimation is positive and statistically significant at the 5-percent level. Since all variables are expressed in natural
logarithms, the coefficients can be interpreted as elasticity estimates. They indicate that a 1-percent increase in energy usage increases real GDP by 0.25
DLPX
DLELEC
DLGDP
LPX
LELEC
LGDP
Variable
19.9956*
(0.0000)
16.244
0.346
12.1534*
(0.0000)
19.868*
(0.0000)
0.3971
2.56001*
(0.0052)
1.48861
(0.0683)
Breitung
t-stat
3.59027
(0.9998)
Levin, Lin
&
Chu (LLC)
15.9250*
(0.0000)
19.9105*
(0.0000)
15.0949*
(0.0000)
0.50419
(0.3071)
0.83659
(0.2014)
3.08419
(0.9990)
Im, Pesaran
& Shin (IPS)
W-stat
Null: Unit Root
241.758*
(0.0000)
343.734*
(0.0000)
261.839*
(0.0000)
24.9870
(0.7257)
44.4341
(0.0435)
19.0651
(0.9386)
MW-ADF
Fisher Chisquare
241.758*
(0.0000)
429.690*
(0.0000)
294.865*
(0.0000)
25.7398
(0.6883)
41.5332
(0.0784)
13.5080
(0.9958)
MW- PP
Fisher
Chi-square
11.4121*
(0.0000)
1.61194
(0.0535)
1.01560
(0.8451)
5.08383*
(0.0000)
13.5546*
(0.0000)
11.3987*
(0.0000)
Hadri
Z-stat
11.4121*
(0.0000)
1.95148
(0.0255)
1.67546
(0.0469)
5.08383*
(0.0000)
11.7286*
(0.0000)
7.71484*
(0.0000)
Heteroscedastic
Consistent Z-stat
Null: No Unit Root
* represents significance at the 1-percent level of significance; D is the first difference operator; the null hypothesis is that the variable follows
a unit root process with the exception of the Hadri Z-stat and the Heteroscedastic Consistent Z-stat; p-values are given in parentheses; probabilities for
the Fisher-type tests are computed using an asymptotic Chi-square distribution; and all other tests assume asymptotic normality.
First
difference
Level
Table 5
PANEL UNIT ROOT RESULTS FOR REAL GROSS DOMESTIC PRODUCT PER CAPITA (LGDP), ELECTRICITY
a
CONSUMPTION PER CAPITA (LELEC), AND OIL PRICE (LPX)
248
v-Statistic
rho-Statistic
PP-Statistic
ADF-Statistic
Panel
Panel
Panel
Panel
Pedroni (1999)
Pedroni (2004)
(Weighted statistic)
0.1791
1.0267
0.8186
0.7143
0.1639
0.9971
0.7301
0.8141
Statistics
0.5710
0.8477
0.7935
0.7625
0.5651
0.8406
0.7673
0.2078
Prob.
Group rho-statistic
Group PP-statistic
Group ADF-statistic
Test
1.6241
1.0806
1.2781
Statistics
0.9478
0.8994
0.8601
Pro.b
Between Dimension (Individuals Statistics)
The null hypothesis is that the variables are not cointegrated. Under the null hypothesis, all the statistics are distributed as standard normal
distributions. Prob. denotes probability. The finite sample distribution for the seven statistics has been tabulated in P. Pedroni, Panel Cointegration:
Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis, Econometric Theory, vol. 20, no. 3
(2004), pp. 597625. Pedroni (1999) refers to P. Pedroni, Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,
Oxford Bulletin of Economics and Statistics, vol. 61, special issue (1999), pp. 65370.
v-Statistic
rho-Statistic
PP-Statistic
ADF-Statistic
Test
Within Dimension (Panel Statistics)
Panel
Panel
Panel
Panel
Methods
Table 6
PEDRONI RESIDUAL COINTEGRATION TEST RESULTS FOR ELECTRICITY CONSUMPTION PER CAPITA
a
(LELEC), REAL GROSS DOMESTIC PRODUCT PER CAPITA (LGDP), AND OIL PRICE (LPX)

249
250

Table 7
PANEL COINTEGRATION TEST RESULTS OF A FISHER-TYPE TEST USING AN
UNDERLYING JOHANSEN METHODOLOGY FOR ELECTRICITY
CONSUMPTION PER CAPITA (LELEC), REAL GROSS DOMESTIC PRODUCT
a
PER CAPITA (LGDP), AND OIL PRICE (LPX)
Null Hypothesis
r=0
r1
r2
Alternative Hypothesis
Fisher* Statistic
(Trace)
Fisher* Statistic
(Max-Eigen)
r>1
r>2
r>3
72.87*
31.99
33.96
65.20*
29.17
33.96
a
Asymptotic p-values are computed using a Chi-square distribution; * indicates that the test
statistics are significant at the 1-percent level; and Fishers test applies regardless of the dependent
variable.
percent. With energy prices, a 1-percent increase in per-capita electricity consumption leads to an increase of real GDP by 0.27 percent instead of 0.25 percent.
The results are unexpected, but this is most probably due to the structure of
energy consumption in our panel of countries. Indeed, access to modern fuels in
these nations including access to electricity is still very low. The population is
highly dependent on traditional biomass (wood, agricultural residues, and other
primitive energy sources) for domestic purposes. On average, only about 20 percent
of the population has access to electricity and per-capita electricity consumption is
88 kWh. This per-capita electricity consumption varies from 346 kWh in countries
such as Benin and Senegal to 22 kWh in Burkina Faso and Niger. There is also
a large gap between access to electricity in urban (40 percent on average) and rural
areas (about 6 to 8 percent on average), as can be seen in table 4 earlier.
The power sector in these countries is characterized by excessive costs, low
service quality, poor investment decisions, and lack of innovation in supplying
customers. This contributes to the extremely low access rate to electricity. Moreover, oil consumption accounts for less than 20 percent of total energy and the
industrial sector is the regions largest oil user, although, industrial consumers appear to be relatively price inelastic.
In addition, it must be noted that subsidies for oil products such as diesel,
kerosene, or liquefied petroleum gas are common in these countries, particularly
during periods of high and volatile oil prices. Thus, taking into account the variable price in the model improves the overall significance of the estimation but
does not change the direction and the magnitude of the impact of electricity
consumption on GDP.
We also use FMOLS to check the long-run cointegrating relationship between
electricity consumption and GDP for individual countries. The results of the estimation
251
Table 8
RESULTS OF THE JOHANSEN COINTEGRATION TESTS FOR ELECTRICITY
CONSUMPTION PER CAPITA (LELEC), REAL GROSS DOMESTIC PRODUCT PER CAPITA
a
(LGDP), AND OIL PRICE (LPX)
Null
Hypothesis
Alternative
Hypothesis
Benin
r=0
r1
r 2
r> 1
r >2
r >3
17.6853
7.3375
1.6901
10.3478
5.6473
0.6901
Burkina Faso
r=0
r1
r 2
r> 1
r >2
r >3
12.5725
2.7711
0.0015
9.7999
2.7726
0.0015
Cape Verde
r=0
r1
r 2
r> 1
r >2
r >3
22.9797
3.1555
0.1537
19.6705**
3.3092
0.1537
Ivory Coast
r=0
r1
r 2
r> 1
r >2
r >3
19.8147
6.8182
1.8127
12.9966
5.0054
1.8127
Gambia
r=0
r1
r 2
r> 1
r >2
r >3
38.7264*
6.8182
1.9194
24.2800*
5.0054
1.9194
Ghana
r=0
r1
r 2
r> 1
r >2
r >3
33.0642*
15.1397**
1.4382
17.9246
13.7015**
1.4382
Guinea
r=0
r1
r 2
r> 1
r >2
r >3
25.7340
9.0393
1.2997
16.6947
7.7395
1.2997
Guinea Bissau
r=0
r1
r 2
r> 1
r >2
r >3
23.6415
3.6075
0.2226
20.0340**
3.3848
0.2226
Liberia
r=0
r1
r 2
r> 1
r >2
r >3
17.1262
3.2688
0.0037
13.8574
3.2651
0.0037
Mali
r=0
r1
r 2
r> 1
r >2
r >3
21.7320
6.0201
0.1931
0.2421
0.6355
0.6604
Niger
r=0
r1
r 2
r> 1
r >2
r >3
36.8019*
8.1060
2.8362
28.6958*
5.2698
2.8362
Countries
Trace
Statistic
Maximum-Eigen
Statistic
(continued)
252

Table 8 (continued)
RESULTS OF THE JOHANSEN COINTEGRATION TESTS FOR ELECTRICITY

CONSUMPTION PER CAPITA (LELEC), REAL GROSS DOMESTIC PRODUCT PER CAPITA
a
(LGDP), AND OIL PRICE (LPX)
Null
Hypothesis
Alternative
Hypothesis
Trace
Statistic
Maximum-Eigen
Statistic
Nigeria
r=0
r1
r 2
r> 1
r >2
r >3
26.8419*
17.8461**
0.4919
44.6879*
17.3542**
0.4919
Senegal
r=0
r1
r 2
r> 1
r >2
r >3
23.6339
7.9949
0.3483
15.2906
8.3432
0.3483
Sierra Leone
r=0
r1
r 2
r> 1
r >2
r >3
23.7391
8.0502
1.8215
15.6889
6.2287
1.8215
Togo
r=0
r1
r 2
r> 1
r >2
r >3
30.6359**
10.9391
2.5944
19.6968**
8.3447
2.5944
Countries
Asymptotic p-values are computed using a Chi-square distribution; * indicates that the test
statistics are significant at the 1-percent level; ** indicates that the test statistics are significant at the
5-percent level; and Fishers test applies regardless of the dependent variable.
of individual FMOLS are also reported in table 9. Prices seem to be less influential for
most of the countries and its inclusion in the model does not give conclusive results.
The estimates of the electricity equation for the countries with evidence of
cointegration show a significant and positive long-run relationship with GDP in
the case of Cape Verde, Ghana, and Nigeria, with income elasticities of 0.32, 0.11,
and 0.44, respectively. The long-run relationship in the case of Niger is not significant; for Gambia, Guinea Bissau, and Togo there is a negative and significant
relationship between electricity consumption and real GDP.
The Granger Causality Test: As the variables are cointegrated, the Granger
causality tests can be performed by employing the panel error-correction model
(ECM). Granger causality results in tables 10 and 11 summarize the causality
estimates for the full panel and individual countries.
The results of the significance of the estimated coefficients of lagged values of
the change in real GDP, along with the ECT in equation (11a) and lagged values of
the change in the electricity consumption in conjunction with the ECT in equation
(11b), are not consistent with the presence of strong Granger causality, which
indicates that there is no short-run relationship running from electricity consumption to economic growth (GDP) or from GDP to electricity.
253
Table 9
FULLY-MODIFIED ORDINARY LEAST SQUARES (FMOLS) LONG-RUN ELASTICITIES
(Dependent variable is gross domestic product)
FMOL Independent Variables

Country
LELEC
LPX
Cape Verde
0.32
[26.27**]
0.41
[12.70**]
Gambia
0.11
[24.50**]
0.07
[2.29***]
Ghana
0.11
[5.61**]
0.12
[51.35**]
Guinea Bissau
0.02
[6.50**]
0.27
[31.27**]
1.00
[0.01]
0.11
[40.60**]
Nigeria
0.44
[5.36**]
1.00
[0.01]
Togo
0.35
[8.09**]
0.68
[1.93***]
Panel with time dummies between results
0.32
[27.81**]
Panel with time dummies within results
0.32
[27.81**]
Panel without time dummies between results
0.25
[53.10**]
0.27
[69.42**]
Panel without time dummies within results
0.25
[53.10**]
0.27
[69.43**]
Niger
a
t-statistics are in brackets; ** represents significance at the 5-percent level; *** represents
significance at the 10-perecent level; LELEC = logarithm of electricity consumption per capita; and
LPX = logarithm of oil price.
However, the coefficient of the error-correction term in the GDP equation is

significant. The statistical significance of the error-correction term denotes the
speed of adjustment to long-run equilibrium. This provides evidence of a long-run
permanent relationship between GDP and electricity for the panel of countries in
this study, suggesting that GDP responds to deviations from long-run equilibrium
while there is no evidence for long-run adjustment in electricity consumption.
254

Table 10
THE RESULTS OF THE GRANGER CAUSALITY TEST
Source of causation (independent variable)

Short Run
Joint(Short Run / Long
run)
Long Run
Countries
Cape Verde
Dependent
Variables
Ghana
Niger
2.903
(0.573)
0.345**
(0.044)
0.095
(0.454)
0.056***
(0.075)
0.102
(0.026)
0.899
(0.795)
0.088
(0.132)
0.021**
(0.042)
2.903
(0.573)
0.063**
(0.044)
0.736
(0.178)
0.114
(0.068)
0.899
(0.795)
5.772
(1.739)
0.7360
(0.178)
0.027***
(0.085)
0.830
(0.594)
1.206
(0.317)
0.263
(0.630)
0.051
(0.070)
0.081***
(0.039)
0.272
(0.129)
0.008*
(0.037)
ALGDP
ALELEC
0.397
(0.167)
0.018**
(0.011)
ALGDP
ALELEC
Togo
0.064***
(0.071)
0.069***
(0.026)
0.074***
(0.099)
ALGDP
ALELEC
Nigeria
0.012**
(0.026)
0.137***
(0.078)
ALGDP
ALELEC
1.721
(1.685)
7.320
(3.326)
ALGDP
ALELEC
Guinea Bissau
0.398***
(0.059)
ALGDP
ALELEC
DLGDPt-1, DLELECt-1,
ECt-1
DLELECt
EC t-1
ECt-1
Wald x2-Statistics
T-Statistics
2.513
(0.503)
ALGDP
ALELEC
Gambia
DLGDPt
2.545
(0.603)
0.087
(0.100)
(continued)

Table 10 (continued)
THE RESULTS OF THE GRANGER CAUSALITY TEST
255
Source of causation (independent variable)

Short Run
Joint(Short Run / Long
run)
Long Run
Countries
Full panel
Dependent
Variables
DLGDPt
DLGDPt-1, DLELECt-1,
ECt-1
DLELECt
EC t-1
ECt-1
Wald x2-Statistics
T-Statistics
ALGDP
2.04
(0.30)
0.317
(0.57)
0.002*
(0.004)
ALELEC
1.21
(0.30)
0.613
(0.43)
0.051*
(0.008)
The numbers in parentheses are p-values calculated under the null hypothesis of causation;
* represents significance at the 1-percent level; ** represents significance at the 5-perecent level;
LELEC = logarithm of electricity consumption per capita; LGDP = logarithm of real GDP per capita;
LPX = logarithm of oil price; and EC = error-correction term.
Overall, there is no evidence of a short-run relationship between electricity

consumption and GDP, but in the long run, there exists unidirectional causality
running from electricity consumption to real GDP for the entire panel.
The results of the estimation of individual Granger causalities are presented in
table 10. The results from Cape Verde and Ghana imply a negative unidirectional
causality running from income to electricity consumption in the short run. The
results from Cape Verde further indicate that both electricity consumption and
income adjust to restore the long-run equilibrium relationship whenever there is
a deviation from equilibrium cointegrating relationship. For Gambia, there is
a positive unidirectional causality running from income to electricity consumption
in the short run. Furthermore, GDP seems to restore the long-run equilibrium
relationship alone. For Guinea Bissau, in the short run there is a negative causality
running from electricity consumption to income. Finally, for Niger, Nigeria, and
Togo, there is no evidence of causality between energy consumption and income,
indicating neutrality between energy consumption and income in the short run.
Furthermore, GDP levels appear to bear the burden of adjustment toward the longrun equilibrium in response to a short-run deviation in these two countries.
As shown in table 11, at the 10-percent level of significance, we cannot reject the
null hypothesis of the absence of cointegration (R = 0) in the cases of Burkina Faso,
Benin, Ivory Coast, Guinea, Liberia, Mali, Senegal, and Sierra Leone. Thus, for these
countries, a long-run relationship does not exist between electricity consumption and
real GDP. In other words, in these eight countries, electricity consumption and real
GDP are not cointegrated. If the series of two variables are non-stationary and the
256

Table 11
INDIVIDUAL REGRESSION RESULTS (TIME-SERIES REGRESSION)
Countries
Direction of Causation
Benin
F-Statistic
Probability
ELEC!GDP
1.821
0.186
Burkina Faso
ELEC!GDP
1.838
0.183
Ivory Coast
GDP!ELEC
ELEC!GDP
2.402
1.895
0.114
0.174
Guinea
ELEC!GDP
1.958
0.165
Liberia
GDP!ELEC
ELEC!GDP
3.167
1.045
0.062
0.369
Mali
GDP!ELEC
1.505
0.244
Senegal
ELEC!GDP
1.271
0.300
Sierra Leone
GDP!ELEC
3.281
0.057
X !Y means variable X Granger causes variable Y; GDP = economic growth; and ELEC =
electricity consumption.
a
linear combination of them is also non-stationary, then the standard Granger causality
test, rather than error-correction modeling, should be employed
Table 11 shows that there is unidirectional Granger causality running from
electricity to GDP per capita for four countries (Benin, Burkina Faso, Guinea, and
Senegal) and from GDP per capita to electricity for two countries (Mali and Sierra
Leone). Moreover, there exists bidirectional Granger causality between electricity
consumption and income for the Ivory Coast and Liberia.
To sum up, there is no evidence of a short-run relationship between electricity
consumption and GDP, but in the long run there exists unidirectional causality
running from electricity consumption to real GDP for the full panel. Moreover, the
empirical results for individual countries present mixed and conflicting results
across countries.
The results of the study show a unidirectional causality runs from electricity
consumption to economic growth in Cape Verde and Ghana without any feedback
effect in the long run and a negative causality running from electricity consumption
to GDP in the short run.
The short-run negative correlation between electricity consumption and GDP
can be attributed to the diminution of energy intensity due to increases in income.
Indeed, the electrification rates of these two countries are slightly above the rates
of other countries of the panel (68 percent for Cape Verde and 54 percent for
Ghana). As their GDP increases, these countries will seek to expand the quality of
electricity services. The improvement of efficiency will reduce the amount of
257
electricity used. As the efficiency increases, electricity consumption will act as

a stimulus to economic growth in the long term. This explains the long-run positive causality running from electricity consumption to income in Cape Verde and
Ghana.
There exists unidirectional causality from GDP per capita to electricity for Mali
and Sierra Leone. The situation of Mali and Sierra Leone can be interpreted as
follows: with the advancement of the countrys economy, there has been a rapid
growth in electricity consumption in various sectors. Owing to their increased
disposable incomes, households have come to consume progressively more electricity. Economic growth causes expansion in the industrial and commercial sectors
where electricity has been used as a basic input.
There is no evidence of causality between electricity consumption and GDP for
Niger in both the short and the long run. The implication of this finding is that
changes in the trend of electricity used do not have a significant impact on changes
in income in Niger both in the short and long run.
The lack of a causal relationship between electricity consumption and economic growth means that increases in real GDP do not lead to higher electricity
requirements. Economic growth does not result in the expenditure of a greater
proportion of real GDP on electricity consumption and, thus, does not stimulate
additional electricity consumption.
Furthermore, no Ganger causality between electricity consumption and income
is found with respect to Nigeria and Togo in the short run. However, for both
nations there exists a long-run causality between electricity consumption and
growth.
The non-correlation between electricity consumption and GDP in the short
term can be attributed to the low access to electricity. But in the long run, increasing access to electricity is vital for economic growth.
For Gambia, there is a positive causality running from income to electricity
consumption in the short run and a negative causality running from electricity
consumption to income in the long run. So, an increase in real GDP increases
electricity consumption in the short run and, in the long run, an increase in electricity consumption causes an increase in the GDP per capita in Gambia.
Bidirectional causality between economic growth and electricity consumption
holds in the cases of the Ivory Coast and Liberia. In these countries, economic
growth can stimulate the demand for electricity while, in turn, greater electricity
consumption can induce economic growth. Electricity consumption and economic
growth complement each other in these two countries.
For Guinea Bissau the direction of causality is running negatively from electricity consumption to income in the short run and from electricity to income in the
long term. The short-term results may be explained by the inefficient electricity
usage in Guinea Bissau. The use in households of low-technology electrical,
electronic appliances, and equipment (such as lamps, fans, refrigerators, room air
258
conditioners, pumps, telecommunications equipment, and computers) that are

predicted to consume large amounts of electricity may explain this negative relationship. The excessive electricity consumption in unproductive sectors may be
another explanation of this negative causality.
The observed cross-country diversity in the causal pattern is not at all unexpected. As energy consumption structures and policies differ across states, it is
natural to expect a certain degree of cross-country variation in the causal relationship between electricity consumption and economic growth. One of the
explanations for these heterogeneities can be the differences in economic levels
across countries. These differences are reflected in the diversity of industrial
structures and household consumption among countries.
Policy Implications and Concluding Remarks

This paper has documented evidence from 15 African countries with regard to
the causality between electricity consumption and economic growth as well as the
direction of causality. We covered Benin, Burkina Faso, Cape Verde, Ivory Coast,
Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal,
Sierra Leone, and Togo for the period from 1980 to 2008.
The results of the panel causality tests between real GDP and electricity consumption for the 15 countries have revealed a unidirectional long-run causality
running from electricity consumption to real GDP while a relationship between
electricity consumption and GDP has not been found in the short run. These results
have some policy implications. The different results between long- and short-run
causality mean that different energy policies can be implemented.
First, the existence of no causal relationship running from electricity consumption to economic growth in the short run implies that electricity conservation
policies may not have negative impacts on economic activity.
However, as populations of these countries have a limited access to electricity,
conservation policies are not feasible. Moreover, causality between electricity
consumption and growth has been found in the long run. So the long-term economic performance of these countries may be threatened by electricity conservation policies. Nonetheless, energy efficiency and demand-side management
policies can be initiated with no adverse effect on economic growth; such energy
efficiency policies will reduce the wastage of electricity and, thus, the electricity
consumption without affecting the end-use benefits.
Indeed, the above empirical findings also may be due to the occurrence of
a wasteful use of electricity in almost all African countries. The electricity intensities
(defined as the amount of electricity consumption per GDP) in African countries are
higher than the values in the developed countries.47 Higher electricity intensities in
these countries reflect inefficient usage in industry as well as the commercial and
259
household sectors. Thus, there are considerable opportunities for energy efficiency
improvements in the residential, tertiary, and industrial sectors in Sub-Saharan Africa.
If the share of the residential sector in the total electricity used is more or less
important depending on the country, the energy savings potentials are great in this
sector in Sub-Saharan Africa. A large number of households are depending on
low-performance equipment (e.g., cooking equipment). Adoption and use of highperformance equipment will allow higher yields and electricity savings. In addition, buildings are not always adapted to the climatic conditions of Africa; that
leads to overconsumption and losses in energy as waste heat. Energy savings in the
residential sector can be realized through various initiatives, such as energy certification of buildings, billing of heating and cooling costs according to consumption, thermal insulation of new buildings, regular inspection of boilers, and
energy audits of energy-intensive industries.
Moreover, there are clearly savings potentials in the regions power sector. SubSaharan Africas electricity infrastructure is the least developed, least accessible, least
reliable, most costly to operate, and highest priced of any region in the world.48 Major
reasons for operational deficiencies concern the increasingly overextended use of
decades-old generation infrastructure and the inability to contain costs and technically
balance electricity supply and demand. Rehabilitation and maintenance have received
low budget priorities by Sub-Saharan African governments for at least a decade. As
a result, engines wear out prematurely, fuel and lubricant usage rises, and capital costs
per unit of electricity produced also increase.49 Furthermore, there are significant
technical and non-technical losses in the distribution infrastructures in Sub-Saharan
Africa. While the international standard for losses ranges from 10 to 12 percent, some
countries in the region have experienced losses exceeding 30 percent. Non-technical
lossesillegally taking electricity from distribution lines, theft of distribution
equipment, tampering with electricity meters, etc.,are also high in these nations.50
For countries that cannot always meet their electricity requirements, such massive
losses affect distribution companies and exacerbate the situation.
Thus, power-sector reforms in Sub-Saharan Africa are vital to improve energy
efficiency and to increase the populations access to electricity. This requires
sustained and concerted action on three strategic priorities: regional scaling-up of
generation capacity, improving the effectiveness and governance of utilities, and
expanding access through sector-wide engagement.
Second, the panel results suggest that a high level of electricity consumption
leads to a high level of real GDP in the long run. This means that the electricity
sector plays an important role in these states and contributes to GDP. Therefore,
supply-side management policies are needed for increasing electricity access. Indeed, the rise in electricity demand will require an increase in the production of
electricity, which implies the renewal and expansion of electricity infrastructure.51
Therefore, African countries must make the necessary efforts to expand investments
in electricity infrastructure. They also should encourage their industries to adopt
260
new technologies to minimize carbon-dioxide emissions in order to abide by the

recommendations of the Kyoto Protocol.
One of the best solutions for increasing electricity availability, while participating in climate change mitigation efforts, is by raising investments in hydroelectric infrastructure. Hydroelectric development could provide energy at low
costs and with zero carbon emissions for many Sub-Saharan African nations. The
technically exploitable hydropower potential of Sub-Saharan Africa is estimated
to amount to 937 terawatt-hours (TWh)/year (1,834 TWh/year for the entire continent of Africa). However, only 5 percent (8 percent at Africas scale) of this
potential is presently exploited.52 But hydropower development projects are constrained by large up-front investment requirements. Moreover, uneven distribution
of available water resources within countries and the region exist alongside inefficient and unreliable electricity infrastructure, presenting few viable solutions to
many Sub-Saharan African governments individually. Therefore, increasingly solutions that focus on regional development of large-scale generation projects and
cross-border electricity transmission and distribution infrastructure are emerging.
In order to take advantage of economies of scale to combat regional power
shortages, regional power pools have been formed in Central (CAPP), East
(EAPP), Southern (SAPP), and West (WAPP) Africa that seek to improve the
supply of reliable, stable, sustainable, and affordable electricity. Increased investments in the development of these pools can enhance reliability and lower the
cost of electricity across the region and improve conditions on the supply side.
Operational costs are lower, due to investment in least-cost power generation
plants on a regional basis. Improving the supply side will contribute to increased
reliability, shared power generation reserves for the interconnected power grids,
and greater robustness to deal with local droughts or other unexpected events.53
Overall, it can be said that our results highlight the fact that access to modern
energy, measured here by the electricity consumption rate, is a prerequisite for
economic growth. Although our work provides considerable detail on the correlation of electricity consumption and economic growth in some countries of SubSaharan Africa, there are aspects that could be improved upon in later studies. First,
in order to avoid bias caused by the omission of relevant variables, other variables
(such as exports, capital, or labor) could be added to turn the study into a trivariate or
multivariate investigation. Moreover, this work has used the first generation of unit
roots; later studies need to consider the second generation or third generation of
panel unit root tests that can adequately account for cross-sectional dependence.
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THE JOURNAL OF ENERGY

The Electricity-Growth Nexus:

THE ELECTRICITY-GROWTH NEXUS: A DYNAMIC

THE JOURNAL OF ENERGY AND DEVELOPMENT

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

Although the relation between economic growth and electricity consumption

Background: The Sub-Saharan African Energy Situation

THE JOURNAL OF ENERGY AND DEVELOPMENT

ACCESS TO ELECTRICITY, 2009

OECD = Organization for Economic Cooperation and Development.

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

Furthermore, there are also persistent inequalities in electricity access across

kWh/hbt/year = kilowatt-hours per inhabitant per year.

THE JOURNAL OF ENERGY AND DEVELOPMENT

Literature Survey on the Electricity-Growth Nexus

S. Yoo and Y. Kim

J.-H. Yuan et al. (2008)

ARDL Bounds testing

ECM based F-test,

ARDL Bounds test

Cointegration test and

Engle Granger, VAR

GDP!ELEC (Granger causality)

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

S.-H. Yoo (2006)

S. Chen et al. (2007)

GDP!ELEC (Indonesia, Thailand)

ELEC4GDP (for all countries)

GDP!ELEC (Cameroon, Ghana,

ELEC!GDP (Australia, Italy, Slovak

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

Data and Methodology

THE JOURNAL OF ENERGY AND DEVELOPMENT

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

Source: Based on author calculations from the ENERDATA, www.enerdata.net.

THE JOURNAL OF ENERGY AND DEVELOPMENT

ELECTRICITY ACCESS IN THE 15 SELECTED SUB-SAHARAN AFRICAN COUNTRIES, 2010

Source: Authors calculations based on ENERDATA, www.enerdata.net, 2011.

correlation may be present.34 Second, autoregressive parameters are considered to

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

Source: Authors calculations based on ENERDATA, www.enerdata.net, 2011.

THE JOURNAL OF ENERGY AND DEVELOPMENT

In contrast to the IPS test, which is a parametric and asymptotic test, G.

where LMi = 1=N

LGDPit a9it b9i t d1i9 LEC d2i9 LPX e9it

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

THE JOURNAL OF ENERGY AND DEVELOPMENT

u DLPXitk l1 ECit1 m1it

u DLPXitk l2 ECit1 m2it :

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

Results and Policy Implications

Null: Unit Root

Null: No Unit Root

Between Dimension (Individuals Statistics)

Within Dimension (Panel Statistics)

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

THE JOURNAL OF ENERGY AND DEVELOPMENT

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

THE JOURNAL OF ENERGY AND DEVELOPMENT

RESULTS OF THE JOHANSEN COINTEGRATION TESTS FOR ELECTRICITY

SUB-SAHARAN AFRICA: THE ELECTRICITY-GROWTH NEXUS

FMOL Independent Variables