Relationship between energy consumption and economic growth in South Africa : evidence from the bootstrap rolling-window approach

Abstract

This article examines the relationship between energy consumption (EC) and economic growth for South Africa for the period 1971–2009. Most studies examining this relationship do assume that it remains constant through the years; however, the reality might be different since many factors can affect the existence and direction of this causality. This article looks at a bivariate vector autoregressive process and takes into consideration any instability in the model using bootstrap rolling Granger non-causality tests. Full-sample Granger causality tests report no causal relationship between the two variables. Moreover, parameter stability tests detect instability in the model which means that the full-sample Granger causality results are not valid. We therefore allow for the possibility of structural breaks by using bootstrap rolling-window Granger causality tests. Although our results are not very strong, we do however find a sub-period from 1987 to 1989 where EC has a causal effect on gross domestic product growth. Except for this brief sub-period, the results show no linkage between economic growth and EC.