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Abstract
Emerging economies are still faced with need to improve economic growth. One of the main drivers of growth in literature has been found to be electricity consumption. However literature fails to explain the relationship between economic growth and electricity consumption. It is against this background that the study examines the presence of the long run relationship between economic growth and electricity consumption in Botswana. The study use annual time series data for the period 1980 - 2014. Using the Vector Error Correction Model, the study shows that there is a positive long run relationship between the two variables. Electricity consumption drives long term growth and it is an important input in the country's production function. Human capital and inflation are important control variables in explaining this long run relationship. Inflationary pressures on the economy should be kept low and human capital development should be industry relevant for the country to advance its growth efforts. Policymakers should continue with and rather develop instruments that encourage more electricity consumption. In this case electricity subsidies should be given to firms in areas that are critical for country's growth prospects, like mining and agriculture. Policy makers need to make a cost benefit analysis as they design the subsidies to benefit all the targeted economic agents.
JEL classification numbers: O11, E31, E24, F43
Key words: Economic Growth, Electricity Consumption, Botswana, Vector error correction model
1Introduction
Economic growth is experienced when the real output of a country increases over time. It comes about as result of changes and working of factors like supply of resources, the rate at which capital formation is taking place, changes in technology, levels of skills and expertise as well as institutional set ups. It remains high on the priority list for countries because of the existence of its correlation with social problems [1]. Economic growth is one of the macroeconomic goals for any nation and its significance has been top on the agenda in recent years and developing nations like Botswana are not an exception. This area has received widespread coverage by researchers and policy makers in recent years. Literature has focused on the effect of macroeconomic variables like trade openness, inflation, gross fixed capital formation and foreign direct investment on economic growth and...