Advances in Phytochemistry, Textile and Renewable Energy Research for
Industrial Growth – Nzila et al. (Eds)
© 2022 Copyright the Author(s), ISBN: 978-1-032-11871-0
Open Access: www.taylorfrancis.com, CC BY-NC-ND 4.0 license
Electricity consumption and economic growth in Uganda
G.S. Mutumba & J. Otim
Department of Economics and Statistics, Kyambogo University, Kampala, Uganda
S. Watundu
Department of Management Science, Makerere University Business School, Kampala, Uganda
Muyiwa S. Adaramola
Faculty of Environmental Science and Natural Resource Management, Norwegian University of Life Sciences, Aas,
Norway
T. Odongo
Department of Economics, Makerere University Business School, Kampala, Uganda
ABSTRACT: This paper examines the causal relationship between electricity consumption and economic
growth for Uganda (2008–2018). Electricity consumption is among the key drivers of economic growth. Studies
have conflicting results on the direction of causality and methodology. The hypothesis that explains causality
follows growth, conservation, feedback, and neutral. The study uses a vector error correction model within
a multivariate data framework. The Johansen Cointegration test was carried out to ascertain if there exists a
long-run relationship between electricity consumption, real fixed capital formation, labour force, and real GDP.
Data from both World Bank Development Indicators and the Electricity Regulatory Authority of Uganda was
used. The results indicate bidirectional causality between electricity consumption and economic growth in both
the short run and long run. The study recommends Ugandan authorities expand the electricity infrastructure to
increase electricity production only and increase electricity consumption with a focus on efficient energy use to
support economic growth.
Keywords: Electricity consumption, Vector Error Correction, Cointegration, Economic growth, Uganda.
1 INTRODUCTION
Electricity is an important driver for economic growth
and most production and consumption models use
electricity as a vital input. (Bhattacharya 2016;
Fotourehchi 2017; Paul & Bhattacharya 2004). The
direction of causation between electricity consumption
and economic growth has very important implications. The relationship between electricity consumption and economic growth, is of keen interest to
energy economists as it is not possible to have high
rates in one, without the other keeping pace. However, in Uganda the relationship between electricity
consumption and economic growth has not been adequately studied (Asafu–Adjaye 2000). In some earlier
studies, Mawejje and Mawejje (2016), found a bidirectional causality using Error Correction Mechanism
and Granger causality using data for 1971–2011. Similarly, Sekantsi and Okot (2016) confirmed a two-way
long-term relationship using autoregressive distribution lag (ARDL) and Granger causality on data for
1981–2013, confirming the existence of long-run
relationship between electricity consumption and economic growth and vice versa. In addition, the Granger
causality test results confirm the conservation hypothesis in the short run and feedback hypothesis in the
long run. The results are contentious and the debate is
inconclusive.
The relationship between electricity consumption and economic growth can be categorized into
four testable hypotheses: growth, conservation, feedback, and neutrality. The growth hypothesis asserts
that electricity consumption affects the growth process both directly through increasing investment
and employment, and indirectly as a complement
to labour and capital inputs (Sekantsi & Motlokoa 2015). The growth hypothesis is supported
if there is unidirectional causality from electricity consumption to economic growth. Under the
growth hypothesis, electricity conservation policies
that reduce electricity consumption may have an
adverse impact on economic growth. Second, the
DOI 10.1201/9781003221968-37
275
Industrial Growth – Nzila et al. (Eds)
© 2022 Copyright the Author(s), ISBN: 978-1-032-11871-0
Open Access: www.taylorfrancis.com, CC BY-NC-ND 4.0 license
Electricity consumption and economic growth in Uganda
G.S. Mutumba & J. Otim
Department of Economics and Statistics, Kyambogo University, Kampala, Uganda
S. Watundu
Department of Management Science, Makerere University Business School, Kampala, Uganda
Muyiwa S. Adaramola
Faculty of Environmental Science and Natural Resource Management, Norwegian University of Life Sciences, Aas,
Norway
T. Odongo
Department of Economics, Makerere University Business School, Kampala, Uganda
ABSTRACT: This paper examines the causal relationship between electricity consumption and economic
growth for Uganda (2008–2018). Electricity consumption is among the key drivers of economic growth. Studies
have conflicting results on the direction of causality and methodology. The hypothesis that explains causality
follows growth, conservation, feedback, and neutral. The study uses a vector error correction model within
a multivariate data framework. The Johansen Cointegration test was carried out to ascertain if there exists a
long-run relationship between electricity consumption, real fixed capital formation, labour force, and real GDP.
Data from both World Bank Development Indicators and the Electricity Regulatory Authority of Uganda was
used. The results indicate bidirectional causality between electricity consumption and economic growth in both
the short run and long run. The study recommends Ugandan authorities expand the electricity infrastructure to
increase electricity production only and increase electricity consumption with a focus on efficient energy use to
support economic growth.
Keywords: Electricity consumption, Vector Error Correction, Cointegration, Economic growth, Uganda.
1 INTRODUCTION
Electricity is an important driver for economic growth
and most production and consumption models use
electricity as a vital input. (Bhattacharya 2016;
Fotourehchi 2017; Paul & Bhattacharya 2004). The
direction of causation between electricity consumption
and economic growth has very important implications. The relationship between electricity consumption and economic growth, is of keen interest to
energy economists as it is not possible to have high
rates in one, without the other keeping pace. However, in Uganda the relationship between electricity
consumption and economic growth has not been adequately studied (Asafu–Adjaye 2000). In some earlier
studies, Mawejje and Mawejje (2016), found a bidirectional causality using Error Correction Mechanism
and Granger causality using data for 1971–2011. Similarly, Sekantsi and Okot (2016) confirmed a two-way
long-term relationship using autoregressive distribution lag (ARDL) and Granger causality on data for
1981–2013, confirming the existence of long-run
relationship between electricity consumption and economic growth and vice versa. In addition, the Granger
causality test results confirm the conservation hypothesis in the short run and feedback hypothesis in the
long run. The results are contentious and the debate is
inconclusive.
The relationship between electricity consumption and economic growth can be categorized into
four testable hypotheses: growth, conservation, feedback, and neutrality. The growth hypothesis asserts
that electricity consumption affects the growth process both directly through increasing investment
and employment, and indirectly as a complement
to labour and capital inputs (Sekantsi & Motlokoa 2015). The growth hypothesis is supported
if there is unidirectional causality from electricity consumption to economic growth. Under the
growth hypothesis, electricity conservation policies
that reduce electricity consumption may have an
adverse impact on economic growth. Second, the
DOI 10.1201/9781003221968-37
275