Testing the Relationship between Energy Consumption and Economic Growth: Evidence from Nigeria and South Africa

Abstract

Energy demand, supply and pricing impact on socio-economic development, living standards and the overall quality of life of people. The role of energy in the industrial sector activities underscores its link with economic development. For more than three decades, economists and policymakers have been preoccupied with the classic debate on energy consumption and economic growth nexus. This Paper examines the causal relationship between energy consumption disaggregated into coal, hydro and oil, and economic growth in Nigeria and South Africa. Several studies have adopted the standard Granger causality method which places some minimum restriction on the stationarity property of data. Thus, the Hsiao’s Granger causality version was applied to correct these restrictions for the comparative analysis. The estimated results reveal that economic growth causes total energy consumption in South Africa while energy consumption causes economic expansion in Nigeria. The economic implication of this finding is that sub-optimal utilization of energy resources through energy conservative policy may not lead to significant positive effect on economic growth in Nigeria. However, energy enhancement policy could engender economic growth in South Africa.

Key words: Energy Consumption, Economic Growth and Energy policy.