Electricity consumption, trade openness and economic growth in South Africa: An ARDL approach

Holistic economic system which involves production, distribution and consumption of goods and services depends on energy; implying that the growth of most developing and emerging economies is directly or indirectly tied to energy access and its consumption. Thus, energy plays a crucial role in the production of goods and services consumed locally or exported abroad through international trade. Energy production and trade openness are therefore among the essential variables of a country’s economic wellbeing. This study examines the short- and long-run relationships as well as the causal directions between electricity consumption, trade openness and economic growth in South Africa from 1984 to 2015 using autoregressive distributed lag (ARDL) model. This study found that both the electricity consumption and trade openness have a positive and significant effect on economic growth in the long-run. Granger-causality test revealed that electricity consumption and trade openness Granger-cause economic growth without any feedback effects. This concluded that South Africa’s economy significantly benefits from boosting energy production and trade openness.