EVIDENCE ON THE NEXUS BETWEEN ELECTRICITY CONSUMPTION AND ECONOMIC GROWTH THROUGH EMPIRICAL INVESTIGATION OF UGANDA

This paper empirically examines the electricity consumption -economic growth nexus in Uganda for the period 1982 to 2013, with a view to contributing to the body of literature on this topic and informing energy policy design in Uganda. Using capital stock as an intermittent variable in the causality framework, the paper employs Johansen-Juselius (1988, 1995) multivariate cointegration and VECM based Granger causality tests and finds a bidirectional causality between electricity consumption and economic growth in the long-term and distinct causal flow from economic growth to electricity consumption in the short-run, and short-term and long-term Granger causality from capital stock to economic growth, with short-run feedback in the opposite direction. Therefore, it implies that firstly, the Government of Uganda (GoU) can implement conservation policies only through reducing energy intensity and promoting efficient energy use to avoid decline in output and secondly, that the GoUshould intensify its efforts towards capital accumulation in order to realize sustainable economic growth. Lastly, the empirical evidence that electricity consumption influences some short-term capital accumulation supports the GoU’s efforts to allow private sector investment in the electricity sector in an effort to increase electricity supply.