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Electricity consumption and Economic growth in Botswana: A Vector Error Correction approach

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  • Samuel Chingoiro
  • Strike Mbulawa

Abstract

Emerging economies are still faced with need to improve economic growth. One of the main drivers of growth in literature has been found to be electricity consumption. However literature fails to explain the relationship between economic growth and electricity consumption. It is against this background that the study examines the presence of the long run relationship between economic growth and electricity consumption in Botswana. The study use annual time series data for the period 1980 – 2014. Using the Vector Error Correction Model, the study shows that there is a positive long run relationship between the two variables. Electricity consumption drives long term growth and it is an important input in the country’s production function. Human capital and inflation are important control variables in explaining this long run relationship. Inflationary pressures on the economy should be kept low and human capital development should be industry relevant for the country to advance its growth efforts. Policymakers should continue with and rather develop instruments that encourage more electricity consumption. In this case electricity subsidies should be given to firms in areas that are critical for country’s growth prospects, like mining and agriculture. Policy makers need to make a cost benefit analysis as they design the subsidies to benefit all the targeted economic agents.JEL classification numbers: O11, E31, E24, F43Keywords: Economic Growth, Electricity Consumption, Botswana, Vector errorcorrection model

Suggested Citation

  • Samuel Chingoiro & Strike Mbulawa, 2017. "Electricity consumption and Economic growth in Botswana: A Vector Error Correction approach," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 7(2), pages 1-6.
  • Handle: RePEc:spt:admaec:v:7:y:2017:i:2:f:7_2_6
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    References listed on IDEAS

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    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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