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The electricity-growth nexus in South Africa: Evidence from asymmetric co-integration and co-feature analysis

Phiri, Andrew and Nyoni, Botha (2014): The electricity-growth nexus in South Africa: Evidence from asymmetric co-integration and co-feature analysis.

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Abstract

This study undertakes an examination of asymmetric adjustment effects between electricity consumption and economic growth in South Africa using quarterly data collected from 1983Q1 to 2013:Q4. In our study, we employ a momentum-threshold co-integration method to examine the long-run equilibrium relationship between electricity consumption and economic growth. Our empirical results reveal significant nonlinear co-integration behavior between the time series variables with uni-directional causality running from electricity consumption to economic growth and no causal effects in the short-run. This implies that energy authorities in South Africa should avoid implementing conservative electricity policies as this may hamper long-run economic growth. We further extend our empirical analysis by decomposing the time series into their trend and cyclical components and our estimations also depict stronger nonlinear behavior among the de-trended components with bi-directional causality existing between the variables in both the short and long-run. Generally, our study highlights that co-integration and causal effects between electricity usage and output growth is related with the business cycle. Therefore, ignoring the cyclical components of the variables could prove to be quite costly for South African policymakers.

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