Original Research

Resolving the energy-growth nexus in South Africa

Sehludi B. Molele, Thobeka Ncanywa
Journal of Economic and Financial Sciences | Vol 11, No 1 | a162 | DOI: https://doi.org/10.4102/jef.v11i1.162 | © 2018 | This work is licensed under CC Attribution 4.0
Submitted: 24 January 2018 | Published: 07 March 2018

About the author(s)

Sehludi B. Molele, Department of Economics, University of Limpopo, South Africa
Thobeka Ncanywa, Department of Economics, University of Limpopo, South Africa


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Abstract

Energy use is a pivotal element in the economic life of any country, especially in a developing economy such as South Africa. Based on trends such as load-shedding and oil supply shocks, it is essential to investigate the relationship between electricity and oil consumption to economic growth. This is particularly relevant in the South African context, where policy-makers have had to grapple with excess demand for electricity. The Johansen cointegration and vector error correction model approaches have been used to examine a short- and long-run relationship between energy consumption and economic growth. It has been found that electricity consumption has a negative relationship with economic growth and oil consumption has a positive relationship. Therefore, conservation policies like electricity rationing may be implemented, thereby proving to be beneficial to the broader economy. To offset periodical effects such as oil supply shocks, the country should keep high or adequate amounts of oil reserves and/or invest in oil exploration. It is highly recommended, regarding electricity, that the government is to adopt policy measures and direct interventions to promote an efficient use of electricity.

Keywords

electric consumption; oil consumption; economic growth; Johansen cointergration; Vector Error Correction

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