Energy consumption and economic growth in Zambia: A disaggregated approach

Abstract

In this paper, the dynamic causal relationship between energy consumption – total and disaggregated – and economic growth in Zambia during the period 1990 to 2013 is investigated within a multivariate framework in an effort to address the omitted-variable-bias. The study was motivated by inadequate empirical research on the energy and economic growth nexus in the country under study, which could guide policymakers in an informed manner on policies related to energy consumption and economic growth. The study is aimed at unravelling whether or not economic growth in Zambia is dependent on energy consumption, and if found to be dependent, it further attempts to establish the elements of energy demand that propel economic growth in Zambia. To this end, three models were specified in the study, namely one model that considers total energy consumption in the country under study, with the other two models each consisting of an element of disaggregated energy consumption – fossil energy in the second model and renewable energy in the third model. Using the ARDL-bounds testing method within the multivariate Granger-causality framework, the results of the study revealed that the causality between economic growth and energy consumption in Zambia is sensitive to the measure of energy consumption employed and the timeframe of analysis considered. However, in the main, bidirectional causality, both in the long and short run, was found to be predominant. This finding has important policy implications for Zambia as it shows that the buoyant economic growth Zambia has enjoyed over the years is not only just energy-dependent, but that it has been dependent on specific energy types, while energy consumption has also been feeding on economic growth, making these two macroeconomic variables mutually dependent.