Abstract:
This paper revisits the causality relationship between electricity consumption and economic
growth in South Africa for the period 1972-2009 using annual data and takes into
consideration time variation in causal relationships using bootstrap rolling Granger noncausality
tests. Full-sample Granger causality tests find absence of any causality between
electricity consumption and economic growth. However, Parameter stability tests indicate
that there is instability in our VAR model and therefore findings from full-sample Granger
causality test cannot be relied upon. This motivates the use of bootstrap rolling window
estimation to investigate the electricity consumption-growth nexus which accounts for the
time varying causal link between the two variables. The results indicate two sub periods,
2002-2003 and 2005-2006, whereby electricity consumption had a causal effect on GDP
supporting the growth hypothesis. The policy implication is that energy conservation policies
could be a hindrance on economic growth since electricity consumption seems to be the
driving force behind GDP during these sub periods. Apart for these brief sub periods, the
results indicate no causality between the two series. On the contrary, we find that GDP has no
predictive power over electricity consumption for the entire sample considered.
