What if the theoretical framework energy growth reveals unexpected causal relationships? This study uncovers how energy consumption influences economic growth across 15 African nations, challenging conventional beliefs and providing critical insights into the role of electricity in driving GDP.
III. THEORETICAL FRAMEWORK
Energy has been in a middle of economics discussion. Indeed we have 4 main hypothesis which represents different thoughts that have different scholars on the question concerning the causality between the energy consumption and economic growth:
- With at the first rang ‘’Conservative hypothesis’’ from ecologist economists which stipulate that energy consumption does not have a potential effect on economic growth. So the strongly advice the restriction of natural resources use, with the aim of protecting the ecosystem by reducing the CO2 emission. But they are actually contested in the sense that, they did not take in account historical progress, which show that, countries was developing after gradually discovered and consumed different type of energy.
- The second is ‘’the growth hypothesis’’ from the neoclassical economists, who state that energy consumption, have a great impact on economic growth. And reducing its consumption will have a negative effect on the GDP (Bowden 2009). They add that, in opposite to what the first ecologist economists states, energy consumption can allow, with time the creation of substitutes, which at that moment, countries can reduce their energy consumption (Bretschger 2009).
- The third one is the “feedback hypothesis” says that there is bidirectional causal relationship between energy consumption and economic growth which reflect interdependence and possible complementarities associated with energy policies and economic growth (Eggoh, Jude C., Chrysost Bangaké, and Christophe Rault 2011).
- In other hand we have ‘’the neutrality hypothesis’’ those who find the impact of energy consumption insignificant or neutral on the economic growth. In the sense that argue against by the role of energy is minimal or is neutral to economic growth. This is because that the cost of energy is very low relative to GDP. Moreover they argue that as an economy develops, its production structure will be located more in the service sector is less energy intensive compared to industry (Ghali and l’EL-Saka 2004).
Thus, in a general point of view, neoclassic theory precisely the exogenous theory growth of Solow, which claims that technology is an exogenous factor which predicts the growth. Its main assumption was:
- Reducing the returns of labor and capital
- Maintaining constant the return on scale, competition market equilibrium and the saving rate
In regards to this theory endogenous growth theory has been developed: Romar endogenous growth theory was first presented in 1986 in which he takes knowledge as an input in the production function (Gbadebo, Olusegun ODULARU, Chinedu Okonkwo 2009).
Its major assumptions are:
- Increasing returns to scale
- Human capital and the production of new technologies are essential for long run growth.
- The importance of Private investment in Research and Development
- Knowledge or technical advances are non-rival good.
(1)
Where:
Y: Aggregate real output
K: Capital
L: Labour
A: Technology
Considering technology as an endogenous factor which could be related to the energy in the sense that energy is a necessary factor to ensure that the technology is used (Gbadebo, Olusegun ODULARU, Chinedu Okonkwo 2009).
The in our specific case we can take energy (E) as an independent variable and we can adapt it to the equation (1):
(2)
Because the main kind of energy that our cases study have in common are: Oil, electricity and natural gas, we rewrite our equation as:
) (3)
Where the linear form of the model will be:
(4)
In order to achieve our empirical research we will use the Granger test model, which is a causality concept created in 1969 by Granger.
It is based on linear regression which states: if a signal a signal then past values of should contain information that helps predict above and beyond the information contained in past values of alone.
As a sum up, the null hypothesis are:
GDP does not Granger causes energy consumption
GDP does Granger causes energy consumption
Energy consumption does not Granger causes GDP
Energy consumption does Granger causes GDP
GDP does not Granger causes total oil consumption
GDP does Granger causes total oil consumption
Total oil consumption does not Granger causes GDP
Total oil consumption does Granger causes GDP
GDP does not Granger causes total electricity consumption.
GDP does Granger causes Total electricity consumption
Total electricity consumption does not Granger causes GDP.
Total electricity consumption does Granger causes GDP
GDP does not Granger causes natural gas consumption
GDP does Granger causes natural gas consumption
Natural gas consumption does not Granger causes GDP
Natural gas consumption does Granger causes GDP
Frequently Asked Questions
What is the conservative hypothesis regarding energy consumption and economic growth?
The conservative hypothesis from ecologist economists stipulates that energy consumption does not have a potential effect on economic growth and advises the restriction of natural resource use to protect the ecosystem by reducing CO2 emissions.
How does the growth hypothesis explain the relationship between energy consumption and GDP?
The growth hypothesis from neoclassical economists states that energy consumption has a great impact on economic growth, and reducing its consumption will negatively affect GDP.
What does the feedback hypothesis suggest about energy consumption and economic growth?
The feedback hypothesis suggests that there is a bidirectional causal relationship between energy consumption and economic growth, reflecting interdependence and possible complementarities associated with energy policies and economic growth.
What is the neutrality hypothesis in the context of energy consumption and economic growth?
The neutrality hypothesis argues that the impact of energy consumption on economic growth is insignificant or neutral, suggesting that as an economy develops, its production structure becomes less energy-intensive.