Acta Universitatis Danubius. Œconomica, Vol 14, No 5 (2018)

Abstract

Electricity is important for sustainable development as it enhances productivity, employment and general living standards of people. The paper investigates the relationship between electricity consumption and economic growth in a multivariate framework for the period 1980 to 2016 in Zimbabwe. The study builds on previous bi-variate studies on electricity consumption and economic growth nexus. Specifically, the study applies both granger causality tests and single step error correction model to study the relationship between electricity consumption, economic growth and investment. The Granger causality tests confirm the existence of a bi-directional causality between electricity consumption and economic growth. This implies that in Zimbabwe, electricity growth results in increased economic growth and vice versa. Electricity also granger causes investment in Zimbabwe. The study shows that there is a long run relationship between electricity, investment and economic growth in Zimbabwe. The results suggest that consumption of electricity is a prerequisite and a binding constraint to achieving higher economic growth in Zimbabwe. In order to boost economic growth, the country needs to profoundly invest in electricity infrastructure.