EMPIRICAL ANALYSIS OF ENERGY CONSUMPTION AND ECONOMIC GROWTH IN TANZANIA: BASED ON ENGEL AND GRANGER TEST

Year 2020, , 250 - 262, 30.09.2020

Hamis Miraji Ally Simba Mehmet Fatih Oztek

https://doi.org/10.17261/Pressacademia.2020.1292

Abstract

Purpose - This article aims to investigate the effect of energy consumption on economic growth in Tanzania. It is a quantitative investigation that is structured by the time series data from the World Bank (WB) database which started from 1990 to 2019. The article uses variables of Energy consumption (EC) and Economic growth (GDP). The variables are measured in GDP (Constant US$) and EC (MTOE).
Methodology – To obtain the significant estimated results, this study uses econometric tools for both theoretical and empirical analysis such Augmented Dickey-Fuller (ADF) test for identifying stationary and nonstationary time series data, Engel and Granger test for determination of the existence or absence of cointegration relationship, Vector Error Correction Model (VECM) for determining the speed of adjustment (ECT) and Classical Granger-causality test for a causal relationship between economic growth and consumption.
Findings- The core findings from the study are; the cointegration relationship between Energy consumption (EC) and Economic growth (GDP), a bidirectional causal relationship between energy consumption (EC) and Economic growth (GDP) in Tanzania. Therefore, the study accepts the energy feedback hypothesis that revealed to exist both a long-run effect and short-run effect between the energy consumption and economic growth in Tanzania.
Conclusion- The estimated results of this study provide the information to Tanzanian policymakers with a new dimensional approach to Tanzanian economic growth through an increase in energy consumption use. Although Tanzanian government has a huge and long term sustainable project of increasing energy power by adding 2115megawatts to Tanzanian national grid using the Stigler gorge or Julius Nyerere Hydroelectric power at Rufiji River but also Tanzania should invest to the short energy projects consumptions that can facilitate and improve the economic development of domestic hoods.

Keywords

Tanzania, GDP, EC, Engel and Granger test, Granger Causality test

References

• Adžić, S., & Davidović, M. (2015). Monetary polıcy effectıveness ın croatıa: evıdence from a restrıcted var model (VECM). Economics/Ekonomija, 22(2).
• Akinlo, A. E. (2009). Electricity consumption and economic growth in Nigeria: evidence from cointegration and co-feature analysis. Journal of Policy Modeling, 31(5), 681-693.
• Al-Mulali, U., & Sab, C. N. B. C. (2012). The impact of energy consumption and CO2 emission on the economic growth and financial development in the Sub Saharan African countries. Energy, 39(1), 180-186.
• Ang, J. B. (2007). CO2 emissions, energy consumption, and output in France. Energy Policy, 35(10), 4772-4778.
• Aqeel, A., & Butt, M. S. (2001). The relationship between energy consumption and economic growth in Pakistan. Asia-Pacific Development Journal, 8(2), 101-110.
• Aqeel, A., & Butt, M. S. (2001). The relationship between energy consumption and economic growth in Pakistan. Asia-Pacific Development Journal, 8(2), 101-110.
• Besta, N. (2013). Seaweed farming and intra-household gender relations on Songo Songo Island, Tanzania (Doctoral dissertation, University of East Anglia).
• Boma, K. J. (2013). The natural gas sector in Tanzania: suggestions for a better framework to benefit the country (Master's thesis, fi= Lapin yliopisto| en= University of Lapland|).
• Campo, J., & Sarmiento, V. (2013). The relationship between energy consumption and GDP: Evidence from a panel of 10 Latin American countries. Latin American journal of economics, 50(2), 233-255.
• Charemza, W. W., & Deadman, D. F. (1997). New directions in econometric practice. Books.
• Ebohon, O. J. (1996). Energy, economic growth, and causality in developing countries: a case study of Tanzania and Nigeria. Energy Policy, 24(5), 447-453.
• Eggoh, J. C., Bangaké, C., & Rault, C. (2011). Energy consumption and economic growth revisited in African countries. Energy Policy, 39(11), 7408-7421.
• Fallahi, F. (2011). The Causal relationship between energy consumption (EC) and GDP: a Markov-switching (MS) causality. Energy, 36(7), 4165-4170.
• Granger, C. W. (1988). Some recent development in a concept of causality. Journal of econometrics, 39(1-2), 199-211.
• Harris, R. I. (1992). Testing for unit roots using the augmented Dickey-Fuller test: Some issues relating to the size, power, and the lag structure of the test. Economics Letters, 38(4), 381-386.
• Ibrahim, M. (1999). Macroeconomic variables and stock prices in Malaysia: An empirical analysis. Asian Economic Journal, 13(2), 219-231.
• Jinke, L., Hualing, S., & Dianming, G. (2008). Causality relationship between coal consumption and GDP: a difference of major OECD and non-OECD countries. Applied Energy, 85(6), 421-429.
• Jumbe, C. B. (2004). Cointegration and causality between electricity consumption and GDP: empirical evidence from Malawi. Energy Economics, 26(1), 61-68.
• Kamat, V. R. (2017). Powering the nation: natural gas development and distributive justice in Tanzania. Human Organization, 76(4), 304-314.
• Kamat, V. R. (2017). Powering the nation: natural gas development and distributive justice in Tanzania. Human Organization, 76(4), 304-314.
• Kusekwa, M. A. (2013). Biomass conversion to energy in Tanzania: A critique. New development in renewable energy, 240-270.
• Lai, T. M., To, W. M., Lo, W. C., Choy, Y. S., & Lam, K. H. (2011). The causal relationship between electricity consumption and economic growth in a Gaming and Tourism Center: The case of Macao SAR, the People’s Republic of China. Energy, 36(2), 1134-1142.
• Lee, C. C., Chang, C. P., & Chen, P. F. (2008). Energy-income causality in OECD countries revisited: The key role of capital stock. Energy Economics, 30(5), 2359-2373.
• Liew, V. K. S., Baharumshah, A. Z., & Chong, T. T. L. (2004). Are Asian real exchange rates stationary?. Economics Letters, 83(3), 313-316.
• Liu, X., Mao, G., Ren, J., Li, R. Y. M., Guo, J., & Zhang, L. (2015). How might China achieve its 2020 emissions target? A scenario analysis of energy consumption and CO2 emissions using the system dynamics model. Journal of Cleaner Production, 103, 401-410.
• LOT FALIPOUR, M., DEHGHANIAN, S., & AZARINFAR, Y. (2007). SURVEY OF RELATIONSHIP BETWEEN PRODUCTIVITY, PRODUCTION, AND AGRICULTURAL EXPORT AND EFFECT OF IT'S INSTABILITY ON GROWTH OF AGRICULTURAL SECTOR.
• Makala, D., & Zongmin, L. (2019). Natural Gas Consumption and Economic Growth in Tanzania. European Journal of Sustainable Development Research, 4(2), em0113.
• Maysami, R. C., & Koh, T. S. (2000). A vector error correction model of the Singapore stock market. International Review of Economics & Finance, 9(1), 79-96.
• Murry, D. A., & Nan, G. D. (1994). A definition of the gross domestic product-electrification interrelationship. The Journal of energy and development, 19(2), 275-283.
• Napendaeli, S. (2004). Supply-demand chain analysis of charcoal and firewood in Dar es Salaam and Coast Region. Tanzania Traditional Energy Development and Environment Organization (TATEDO), Dar es Salaam.
• Nyoni, F. C. (2013). Relationship between energy consumption and economic growth in Tanzania.
• Ocal, O., & Aslan, A. (2013). Renewable energy consumption–economic growth nexus in Turkey. Renewable and sustainable energy reviews, 28, 494-499.
• Odhiambo, N. M. (2009). Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach. Energy Policy, 37(2), 617-622.
• Ouedraogo, N. S. (2013). Energy consumption and economic growth: Evidence from the economic community of West African States (ECOWAS). Energy Economics, 36, 637-647.
• Pao, H. T., & Tsai, C. M. (2011). Multivariate Granger causality between CO2 emissions, energy consumption, FDI (foreign direct investment) and GDP (gross domestic product): evidence from a panel of BRIC (Brazil, Russian Federation, India, and China) countries. Energy, 36(1), 685-693.
• Sankaran, A., Kumar, S., Arjun, K., & Das, M. (2019). Estimating the causal relationship between electricity consumption and industrial output: ARDL bounds and Toda-Yamamoto approaches for ten late industrialized countries. Heliyon, 5(6), e01904.
• Warr, B. S., & Ayres, R. U. (2010). Evidence of causality between the quantity and quality of energy consumption and economic growth. Energy, 35(4), 1688-1693.
• Zhang, J., Deng, S., Shen, F., Yang, X., Liu, G., Guo, H., ... & Zhang, X. (2011). Modeling the relationship between energy consumption and economic development in China. Energy, 36(7), 4227-4234