Does economic growth drive energy consumption in Madagascar? Fresh empirical evidence

Abstract

This study uses quarterly data spanning from 2007 to 2022 to examine the long-run relationship and causal nexus between economic growth and energy consumption in Madagascar, disaggregating energy consumption into electricity and petroleum consumption, as well as considering total energy consumption, while accounting for the impact of energy imports and energy prices within an econometric framework. Using the Bayer-Hanck cointegration test, we found evidence of positive long-run relationships between the variables of interest. Furthermore, we estimated the long-run elasticities using three complementary approaches: the Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and Canonical Cointegrating Regression (CCR) estimators. The empirical findings indicate that economic growth, energy imports, and energy prices have a positive and statistically significant impact on energy consumption in Madagascar. Additionally, we employed the Toda-Yamamoto approach to Granger non-causality test and the Breitung-Candelon frequency-domain test to investigate the causal relationships among the variables. Notably, our results reveal a unidirectional long-run Granger-causality flowing from economic growth to electricity consumption, thereby providing support for the conservation hypothesis. Furthermore, the time-domain causality test reveals a neutral relationship between economic growth and petroleum consumption, as well as total energy consumption, which is consistent with the neutrality hypothesis. However, the Breitung-Candelon test uncovers a more nuanced dynamic, with total energy consumption found to Granger-cause economic growth in both the long and medium run, thereby supporting the growth hypothesis. Notably, the causal linkage is strengthened when the test is not conditioned on energy prices and energy imports, and petroleum consumption is also found to cause economic growth in this bivariate framework. Conversely, electricity and economic growth become neutral to each other. Our findings highlight the intricate interplay between economic growth and energy consumption, underscoring the critical roles of energy imports and prices in this dynamic.