Dynamic relationships between sectoral electricity consumption, economic growth and electricity prices in South Africa
Dynamic relationships between sectoral electricity consumption, economic growth and electricity prices in South Africa The purpose of this paper is to explore the dynamic relationship between the sectoral outputs, electricity supply and electricity price in South Africa within the endogenous growth model framework. Over the past two decades or more the relationship between economic growth and electricity consumption has received much attention due to its various policy implications. However, none of the studies considered the relationship between electricity consumption and sectoral output growth, additionally no study to the best of our knowledge considered the impact of electricity prices on sectoral (or on aggregate economic) growth. In the light of this, the current study uses multiple equation VAR and Johansen (1991) methodologies to assess the long run cointegrating and short run adjustment relationships between sectoral outputs, electricity consumption, and electricity price in South Africa for the period January 1991- March 2015 using monthly data. According to VECM results in the long run electricity supply affect the retail sector, while in the case of mining and wholesale sectors, growth in these sector puts upward pressure on electricity supply. In the long run manufacturing sector is not affected by and does not affect electricity supply. In the short run there were some unidirectional causalities, however, the crucial finding is that an abundance of electricity supply will enhance most of the sector under study. In the long run electricity price does not affect the manufacturing, wholesale and retail sectors, it only affects the mining sector. This implies that the manufacturing, retail and wholesale sectors can absorb the price increases in the long run but the mining sector is adversely affected by such price increases. In the short run the VECM results suggest that price adversely affects the mining and wholesale sectors. While the manufacturing and retail sectoral growths tend to affect price. However, the VAR results suggest that there is a bidirectional causality between electricity price and the manufacturing and mining sector in the short run. Moreover, there is no causality between electricity price and the retail and wholesale sectors respectively. Hence in summary evidence of causality running from price to growth, at least in some sectors over the short run , for example, in a labour intensive sector like mining and in the somewhat labour intensive wholesale and manufacturing sectors, hence electricity supply ought to be expanded in the economy to keep price down.
electricity supply --pricing --South Africa
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