Dynamics between Financial development, Energy consumption and Economic growth in Sub-Saharan African countries: Evidence from an asymmetrical and nonlinear analysis

This paper analyzes the asymmetrical relationship between financial development, energy consumption and economic growth in twenty-one (21) sub-Saharan African (SSA) countries from 1990Q1 to 2014Q4. We used the nonlinear autoregressive distributed lag (NARDL) framework and asymmetrical causality tests to examine the relationship between the variables. First, the country-level analysis reveals that there is asymmetrical cointegration between the variables in some countries and mixed results of the causal effects of financial development and energy consumption on economic growth across countries. Second, the results of the panel data analysis confirm the asymmetrical cointegration in the SSA region, especially in lower-middle-income countries than in upper-middle-income countries. We find that positive changes in energy consumption significantly reduce economic growth, contrary to the negative changes in the long-term. Besides, positive shocks to financial development favor more economic growth than the adverse shocks in the long-term in the SSA region. However, financial development hurts economic growth, contrary to energy consumption in the short-term. Finally, the results show bidirectional causality between positive changes in energy consumption and economic growth, but unidirectional causality running from negative changes in energy consumption to economic growth in the SSA region. There is also bidirectional causality between positive and negative shocks to financial development and economic growth in SSA region, but mixed results across lower-income countries and upper-middle-income countries. Therefore, our study suggests that energy-saving policies such as renewable energies can be implemented in the SSA region to promote sustainable development. In addition, policy-makers should adopt an efficient allocation of the credits to the private sector supporting productive investments. They should also pay attention to the asymmetrical relationship between financial development, energy consumption and economic growth in most SSA countries in the conduct of economic policies.