Electricity consumption and economic growth in Ghana

Abstract

The study examined the relationship between electricity consumption and economic growth in Ghana using annual data for the period 1971 to 2010 by employing autoregressive distributed lag (ARDL) approach to cointegration. The study found a cointegrating relationship among the variables when real GDP was used as the dependent variable and no cointegrating relationship among the variables when electricity consumption was used as the dependent variable. The bounds test results revealed that electricity consumption exerted a positive and statistically significant effect on economic growth both in the short-run and long-run suggesting that higher electricity consumption is crucial to economic growth in Ghana. Further, financial development, labour force and capital stocks exerted a positive and statistically significant impact on economic growth both in the short-run and long-run signifying that capital, labour force and financial development are critical in enhancing sustained economic growth and development in Ghana while inflation revealed a negative effect on economic growth as expected and that it is recommended that government consider creating and maintaining macroeconomic stability necessary for energy development and competition while encouraging the stakeholders in the electricity sector to enhance technological and human resource development. The Granger causality test result also revealed a unidirectional causality running from economic growth to electricity consumption indicating that electricity conservation policies are viable options for Ghana since this will not retard growth in the economy.