Electricity consumption and economic growth in South Africa: A trivariate causality test

Abstract

In this paper we examine the causal relationship between electricity consumption and economic growth in South Africa. We incorporate the employment rate as an intermittent variable in the bivariate model between electricity consumption and economic growth-thereby creating a simple trivariate causality framework. Our empirical results show that there is a distinct bidirectional causality between electricity consumption and economic growth in South Africa. In addition, the results show that employment in South Africa Granger-causes economic growth. The results apply irrespective of whether the causality is estimated in the short-run or in the long-run formulation. The study, therefore, recommends that policies geared towards the expansion of the electricity infrastructure should be intensified in South Africa in order to cope with the increasing demand exerted by the country's strong economic growth and rapid industrialisation programme. This will certainly enable the country to avoid unprecedented power outages similar to those experienced in the country in mid-January 2008. © 2009 Elsevier B.V. All rights reserved.