the relationship between electricity consumption and economic growth in kenya: 1970-2004
Abstract
This study set out to evaluate the probable relationship between electricity consumption and
economic growth in Kenya and to determine whether there is either short run or long run
equilibrium relationship between these two variables. To achieve the above objectives both
granger causality analysis and Error Correction Modelling (ECM) were applied to the data
series for electricity consumption and economic growth. The time series data for both annual
electricity consumption and GDP was obtained from government publications for the period
1970-2004.
Prior to testing for causality, analysis of stationarity for both variables revealed that the raw
data sets were non-stationary and only when differenced and subjected to the same tests
became stationary. Further diagnostic tests for regression residuals including residual and
stability tests established that both electricity consumption and economic growth data series
exhibit normal distribution pattern. The series also did not show any serial correlation neither
did they show autoregressive conditional heteroscedasticity effects nor white noise and had
very stable regressions. Therefore, the subsequent regressions conform to the OLS assumption
of consistency and efficiency.
Estimation results from the granger causality analysis indicated that there is a bidirectional
relationship running from electricity consumption to real GDP and vice versa. Thus an
increase in electricity consumption would raise real GDP while improved economic growth
would trigger higher electricity consumption.
Citation
Masters thesis University of Nairobi (2006)Publisher
University of Nairobi Department of Economics
Description
Masters of Arts in Economic Policy and Management of the University of Nairobi