Modelling The Causal Relationship Between Electricity Consumption And Economic Growth In Kenya

Abstract

The link between electricity intake and growth of an economy has been a topic of contention for decades. Existing studies investigating the causal relation between the two variables have yielded differing results. Little emphasis has been put on Kenya, despite major investment decisions in the energy sector basing on the assumption of electricity consumption triggering growth. This study aimed to examine causality between electric power intake and growth of an economy in Kenya using VECM, to guide policy implementation in the energy sector and other related sectors like environment. Stationarity of the variables was tested using Phillips Perron test. GDP, Electric power consumption were found to be stationary at first difference, whereas inflation is stationary at levels. ARDL bounds Cointegration tests were run to check the existence of a relationship in the long run among the three variables. Results indicated no long run relationship. There was a bi-directional relation between electric power consumption and growth in Kenya, which implies that both investment in the electricity pipeline and energy conservation policies can be pursued by the Kenyan government.