An analysis of economic growth, energy consumption and carbon emissions:the case of Zambia

Abstract

This study focuses on examining the long run relationship and granger causality between economic growth, carbon emissions, energy consumption, in Zambia from 1980 to 2017. The study employs Johansen cointegration technique, Vector error correction model (VECM), error correction-based granger causality and variance decomposition (VDC) to determine cointegration and direction of causality among the three variables. The overall results show that energy consumption is vital in driving Zambia’s economy and that pursuance of energy conservation policies, such as rationing energy consumption will result in a slowdown in economic growth. On the other hand, environmental conservation policies aimed at controlling carbon dioxide emissions are likely to adversely affect the real GDP growth of Zambia in the short run. The long run results lean towards a negative relationship between economic growth and carbon emissions meaning increased carbon emissions work to reduce economic growth. Furthermore, Variance Decomposition Analysis (VDC) results reveal that capital and labour remain key in accounting for variations in economic growth relative to energy consumption and carbon emissions. Therefore, Zambian policy makers should ensure establishing policies that supports expansion of energy generation capacity as well as develop a diversified energy base. Particular focus should be on developing clean/renewable energies so as to ensure sustainable economic growth with minimal adverse effects on the environment. Key words: Economic growth, Energy consumption, Granger Causality, Variance decomposition, Carbon emissions