The causal relationship between electricity consumption and economic growth in Uganda (1990-2018)

Abstract

The study aimed at establishing the causal relationship between electricity consumption and economic growth in Uganda between 1990 and 2018. The study used time series data of electricity consumption and gross domestic product per capita. This data was obtained from Electricity Regulatory Authority (ERA) and Ministry of Finance, Planning and Economic Development (MoFPED) respectively. An Auto Regressive Distributed Lag (ARDL) model was used to determine the short and long run relationships between electricity consumption and economic growth in Uganda. In addition, a Granger causality test was used to establish the causal relationship between the two variables. The model revealed that there exists a negative significant relationship between electricity consumption and economic growth in Uganda in the short ran. The findings also revealed the existence of a significant positive relationship between the electricity consumption and economic growth in the long run since the electricity consumption coefficient in the Auto Regressive Distributed Lag model was significant at 5% level of significance [p-value (0.000) < 0.05] The Granger causality test showed that there exists a unidirectional causal relationship running from electricity consumption to economic growth since the p-value (0.0184) was less than the 5% level of significance. This implied that an increase in electricity consumption leads to economic growth.

Therefore, this study recommends that the government of Uganda should subsidize electricity connection fees and regulate electricity tariffs to increase its accessibility and consumption amongst the different categories of consumers. In conclusion, electricity consumption and economic growth have a negative significant and positive significant relationships in the short run and long run respectively in Uganda. The findings also showed that electricity consumption spurs economic growth in Uganda. Thus, the growth hypothesis holds in Uganda.