The Nexus of Electricity, Economy and Capital: A Case Study of Botswana

Abstract

This study undertakes an examination of the correlation between electricity consumption and real gross domestic product in Botswana, a nation renowned as the world's leading diamond producer. The research adopts a trivariate approach encompassing capital formation within the analytical framework, spanning the timeframe from 1980 to 2008. The investigative methodologies encompass the Zivot and Andrews (1992) unit roots test, the bound test for cointegration, and the Granger causality test. The findings of the study reveal a unidirectional causality from electricity consumption to real income, aligning with previous research such as the work of Altinay and Karagol (2005). The long-term estimations further substantiate these Granger causality tests by demonstrating a positive association between electricity consumption and real income over an extended period. Additionally, the results indicate a unidirectional causality from capital formation to real income. The implications of these findings suggest that Botswana, being a nation heavily reliant on energy, will witness the impact of its capital formation on the economy being partially contingent on the availability of adequate electricity resources. This underscores the critical role of sustained and robust energy infrastructure in shaping the economic performance of Botswana.