Energy consumption and economic growth: evidence from African oil exporting countries.

Abstract

This thesis examines the relationship between energy consumption and economic growth in a sample of African oil-exporting countries (AOECs). The group comprises Algeria, Angola, Egypt, Gabon, Nigeria and the Republic of Congo. The thesis presents three separate, but interconnected essays based on annual data on the period 1980 to 2018. The persistent energy consumption issues are ascribed to the failure of energy planners to understand the various macroeconomic factors that influence energy consumption. Therefore, the first essay in Chapter 3 investigates the factors influencing energy consumption, using the cross-sectional autoregressive distributed lag and the cross-sectional distributed lag modelling estimators. These estimators consider the time dynamics and the heterogeneity of the different countries. Moreover, they are robust to cross-sectional dependence. The study explores the relationship between energy consumption and its major determinants, such as openness, economic structure and per capita income. The results reveal that openness has a positive and significant effect on energy consumption in AOECs during the period under study, while the economic structure has a negative and significant effect. The third variable of interest, namely per capita income, does not impact significantly on energy consumption. It is, therefore, recommended that these countries transform their economies structurally such that it will make economic growth more inclusive, driven by domestic value-added and not exogenous income from primary product exports. Most African net oil exporters are characterised by a unique paradox. They have low energy consumption despite their large energy deposits, and their economic growth rates are lower than both the global and African average. Hence, the second essay in Chapter 4 investigates the causal relationship between energy consumption and economic growth. The study uses both linear and non-linear estimators. The study estimates a panel smooth transition vector error-correction model, which is robust to cross-sectional dependence and endogeneity and conduct a regime-wide Granger causality test. The study finds that the nonlinearities between the two variables are better explained whenever energy consumption is the transition variable. The Granger causality results show that in the short run, neither energy consumption nor economic growth causes each other in both low and high-growth regimes. In the long run, however, energy consumption Granger causes economic growth in high-growth regimes only. The economic growth variable, Granger causes energy consumption in both regimes. We conclude that a high economic growth rate drives energy consumption in AOECs. Consequently, it is recommended that conservation policies such as eliminating fossil fuels should be implemented efficiently, as they can hinder growth in the long run. A close connection exists amongst oil price shocks, energy consumption and economic growth. This connection has consequences for the growth of an economy. Using the Bayesian structural vector autoregressive model, the third essay in Chapter 5 analyses the impact of oil price shocks on energy consumption and economic growth. The study finds that the oil price shocks impact energy consumption and economic growth of all six AOECs. Conversely, the domestic variables of energy growth and economic growth does not impact oil price inflation. The unexpected variations in energy consumption impacts positive influence on economic growth in Nigeria, the Republic of the Congo and Gabon, whereas it is an inverse relationship in Angola, Egypt and Nigeria. The shock of economic growth leads to positive change in energy consumption in Angola, the Republic of the Congo, Egypt and Nigeria, but with inverse relationship in Algeria and Gabon. It is on this basis that we recommend the diversification of these economies to lessen the effect of external shocks in AOECs.