Modelling Energy Consumption, Carbon Dioxide Emissions and Economic Growth Nexus in Ethiopia: Evidence from Cointegration and Causality Analysis

Abstract

Policy makers need to know the relationship among energy use, economic growth and environmental quality in order to formulate rigorous policy for economic growth and environmental sustainability. This study analyzes the nexus among energy consumption, affluence, financial development, trade openness, urbanization, population and CO2 emissions in Ethiopia using data from 1970–2014. The ARDL cointegration results show that cointegration exists among the variables. Energy consumption, population, trade openness and economic growth have positive impact on CO2 in the long-run while economic growth squared reduces CO2 emissions which confirms that the EKC hypothesis holds in Ethiopia. In the short-run urbanization and energy consumption intensify environmental degradation. Toda-Yamamoto granger causality results indicate the bi-directional causality between energy consumption and CO2 emissions, CO2 emissions and urbanization. Financial development, population and urbanization cause economic growth while economic growth causes CO2 emissions. Causality runs from energy consumption to financial development, urbanization and population which in turn cause economic growth. From the result, CO2 emissions extenuation policy in Ethiopia should focus on environmentally friendly growth, enhancing consumption of cleaner energy, incorporating the impact of population, urbanization, trade and financial development.

The Impact of Renewable Energy, Economic and Population Growth on CO2 Emissions in the East African Region: Evidence from Common Correlated Effect Means Group and Asymmetric Analysis

“…In the case of the East African region (see Table 1 for a summary of literature), the main focus of our study, few country-specific studies have been conducted using the four most common hypotheses (bidirectional, two unidirectional (growth and conservative), and neutral); nevertheless, these hypotheses were used in several studies, including [9,27,28] and others. Albiman et al [26] revealed the one-way directional causal relationship running from economic growth and energy consumption to CO 2 emissions in Tanzania.…”

“…Albiman et al [26] revealed the one-way directional causal relationship running from economic growth and energy consumption to CO 2 emissions in Tanzania. Kebede and Hundie [27,28] used ARDL and Granger causality tests, and results showed a reciprocal relationship between energy and CO 2 emissions, and the causation from economic growth to CO 2 emissions in Ethiopia. Asumadu-Sarkodie et al [29] argued that in Rwanda, an increase in economic growth leads to a decrease in CO 2 emissions, while population growth promotes CO 2 emissions and negatively affects economic growth.…”

“…Although several studies have discussed CO 2 emissions in relation to renewable resources and economic and population levels at global and continental levels, there are no studies on CO 2 emissions and its determinants (economic and population growth and renewable energy) at the East African regional or country levels. Some studies have used methodologies that assume asymmetric linkages, such as an autoregressive distributed lagged model (ARDL), for country-specific research for EACs (see [26][27][28][29]). Other studies have used first-generation estimators, such as dynamic ordinary least square (DOLS), fully modified ordinary least square (FMOLS), generalized methods of the moment (GMM), and others.…”

Does energy-environmental Kuznets curve hold for Ethiopia? The relationship between energy intensity and economic growth

“…Due to the merits that the ARDL bounds testing approach to cointegration has over the traditional approaches to cointegration (Chindo et al 2014;Halicioglu and Ketenci 2016; (5) Hundie 2018;Shahbaz et al 2015;Shahbaz et al 2013); this study applied the ARDL approach to test the long-run cointegration among the variables under consideration.…”

The Relationship between Economic Growth, Energy Consumption and Carbon Dioxide Emissions: Evidence from Central Asia

“…They found that a 1 percent increase in GDP per capita leads to a decrease of CO2 emissions by 1.45 percent, but a 1 percent increase in industrialization will increase CO2 emissions by 1.64 percent in the long-run. Likewise, Hundie (2018) assessed the relationship between energy consumption, CO2 emissions and economic growth in Ethiopia between 1970 and 2014. Results showed that energy consumption, population, trade openness and economic growth have a positive effect on CO2 in the long-run, while economic growth squared has a negative relationship with CO2 emissions.…”