| dc.description.abstract | This study sought to investigate the relationship between petroleum consumption and economic
growth between 1980 and 2009 in Kenya. The amount of petroleum consumed was used as a proxy of
energy infrastructure growth. In addition, other variables were hypothesized to affect economic
growth including private physical capital and labor. The study employed co integration analysis and
error correction methods to investigate the relationship. The analysis paid attention to the time series
properties of the data and the existence of long-run equilibrium between the variables.
Granger causality tests were therefore carried out. The results of unit root tests indicate that all the
series are integrated of order one, implying that the series are stationary after first-differencing. The
co integration tests results indicate that the series are co integrated, implying that there is a long-run
relationship between the variables in the model. The estimation results of the error-correction model
indicate that petroleum consumption has positive short-run impact on real GDP. In addition, a
deviation from long-run real GDP in a given year is corrected by about 18% in the subsequent year.
The estimation results of the long-run model indicate that the output elasticity with respect to
petroleum consumption is 0.017. Another result is that there is uni-directional Granger causality
running from petroleum consumption to economic growth. Given the long-term positive effects on the
economy the results suggested that an energy growth policy in the petroleum consumption should be
adopted in such a way that it stimulates growth in the economy. Such growth would contribute to
realization of vision 2030. Therefore, energy policy regarding petroleum consumption may be
implemented in such a way that it further boosts economic growth as well as create investment
opportunities in Kenya. On the other hand, the uni-directional causality between petroleum
consumption and GDP implies that increase in petroleum consumption stimulate economic growth.
Therefore, petroleum consumption may be encouraged as it is beneficial to the economy of the
country. | en |
