Energy consumption and economic growth in Botswana: Empirical evidence from disaggregated data analysis

Abstract

In this paper we examine the causal relationship between energy consumption and economic growth in Botswana during the period 1980-2016. We disaggregate energy consumption into six components, namely: total energy consumption, electricity consumption, motor gasoline, gas/diesel oil, fuel oil and liquefied petroleum gas. We then compare the results of the disaggregated energy components with that of the aggregated energy consumption level. In order to account for the omission-of-variable bias, we incorporate inflation and trade openness as intermittent variables between the various components of energy consumption and economic growth, thereby creating a system of multivariate equations. Using the ARDL-bound testing approach, the study found a causal flow from economic growth to energy consumption to predominate. This finding has important policy implications as it shows that the buoyant economic growth that Botswana has enjoyed over the years is not energy-dependent, and that the country could pursue the requisite energy conservation policies without necessarily stifling its economic growth. To our knowledge, this study may be the first of its kind to examine in detail the causal relationship between energy consumption and economic growth in Botswana using a multivarite causality model and a disaggregated dataset.