Energy consumption and economic growth in South Africa reexamined: A nonparametric testing apporach

This paper is an effort to investigate claims concerning Granger causality relationship from energy consumption to economic growth in South Africa. We adopt a nonparametric bootstrap method to reassess evidence supporting Granger causality and unravel findings of long-run unidirectional causality running from energy consumption to economic growth. This implies that energy conservation policies will negatively impact economic growth in South Africa. In addition, the results of this study have implications on CO2 emissions in South Africa given that coal accounts for about 72% of energy. This suggests that energy use would have a long run effect of raising the country׳s CO2 emission levels. Hence, there might be a need to develop a more balanced energy structure which will include higher share of renewable energy. A further Monte Carlo experiment performed reveals that asymptotic Granger causality test suffers size distortion problem for South African data. These findings provide support for use of a bootstrap methodology and also imply that the results presented in this study are likely to be more reliable.