THE JOURNAL OF ENERGY AND DEVELOPMENT

Melike E. Bildirici, The Relationship between Economic Growth

and Electricity Consumption in Africa: MS-VAR and MS-Granger Causality Analysis,

Volume 37, Number 2

Copyright 2012

THE RELATIONSHIP BETWEEN ECONOMIC GROWTH AND ELECTRICITY CONSUMPTION IN AFRICA: MS-VAR AND MS-GRANGER CAUSALITY ANALYSIS
Melike E. Bildirici*

Introduction

he relationship between energy consumption and economic growth is of great importance for both developed and developing nations.1 The level of energy consumption is a measure of economic development, and energy itself is a main factor of production in addition to the traditional inputscapital and laboramong others (i.e., raw materials, technology). Energy and electricity consumption play a vital role in the economic development of countries and, therefore, have become a focus of many involved in the economics arena. Electricity consumption has been analyzed through a plethora of perspectives within the field of energy economics. In much of the literature, energy consumption is a significant metric in assessing the level of economic development; other research has concentrated on energy as a key factor in the production process. The seminal works of H. Houthakker, F. Fisher and C. Kaysen, R. Baxter and R. Ress, H. Houthakker and L. Taylor, J. Wilson, T. Cargill and R. Mayer, K. Anderson, and T. Mount et al. have focused on energy demand and price and
*Melike Bildirici, Professor at the Yildiz Technical University in Istanbul, Turkey, holds a B.S. from Marmara University (Istanbul) and earned both his M.A. and Ph.D. degrees in economics from that institution. Dr. Bildiricis studies have appeared in such publications as The Journal of Energy and Development, Expert Systems with Applications, Family History, Energy Economics, JRSE, Applied Econometrics and International Development, The International Journal of Applied Econometrics and Quantitative Studies, The Journal of Economic and Social Research, METU Studies in Development, YKER, Iktisat, and Isletme and Finans. The Journal of Energy and Development, Vol. 37, Nos. 1 and 2 Copyright 2012 by the International Research Center for Energy and Economic Development (ICEED). All rights reserved.

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income elasticities of energy.2 In these pioneering studies, some papers emphasized energy as a major factor of production. R. Rasche and J. Tatoms work determined that the increase of energy prices stimulated the decreasing trends on gross national product (GNP) by using energy, land, labor, and capital.3 J. Kraft and A. Kraft, A. Akarca and T. Long, E. Yu and J. Choi, and U. Erol and E. Yu analyzed the causality relationship between electricity/energy consumption and economic growth.4 Subsequent studies that followed examined the causality between electricity consumption and economic growth in various countries and regions. When reviewing the results obtained from the academic research regarding the relationship between electricity consumption and economic growth, it was found that different conclusions about the direction of causality are obtained. The differences in these causality results can be categorized into four hypotheses: neutrality hypothesis, conservation hypothesis, growth hypothesis, and feedback hypothesis. (1) The neutrality hypothesis suggests that there is no causality between economic growth and energy (electricity) consumption. (2) The feedback hypothesis states that a bi-directional causality exists running between economic growth and energy (electricity) consumption and between energy consumption and economic growth. (3) The conservation hypothesis asserts that causality is uni-directional running from economic growth to energy (electricity) consumption. When causality runs from economic growth to energy consumption, an economy is less dependent on energy; thus, energy conservation policies, such as phasing out energy subsidies, may not adversely affect economic growth. (4) The growth hypothesis evaluates the existence of uni-directional causality from energy (electricity) consumption to economic growth.5 According to the growth hypothesis, a states economy is energy dependent. In this case, the reduction of energy (electricity) consumption will lead to a decline in economic growth because energy consumption is a prerequisite for this growth; thus, energy is a direct input in the production process and/or is an indirect input that complements labor and capital inputs. This implies that a negative shock to electricity consumption leads to higher electricity prices or electricity conservation policies and, in turn, will have a negative impact on GDP.6 To date, energy economists primarily have focused on causality between energy and economic growth in European and Asian countries, with relatively fewer studies concentrating on African nations (A. Akinlo, A. Kouakou, N. Odhiambo, C. Jumbe, Y. Wolde-Rufael, G. De Vita et al., J. Squalli, K. Jefferis, M. Belloumi, S. Nondo et al., and C. Adebola).7 These papers primarily utilized conventional methods of analysis: autoregressive distributed lag (ARDL), Johansen and Engle Granger cointegration, and the like. However, these methods are not suitable when attempting to model business cycle conditions. With these approaches, the parameters are assumed to be constant over the sample period, which means the relationship between GDP and energy and/or electricity consumption is assumed

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to be stable. Of course, this assumption of stability is not very reflective of the real world economic situation during the past decades as can be witnessed by a significant number of economic crises and meltdowns: the energy crises (1974, 1979), the Exchange Rate Mechanism (ERM) crisis, the southeast Asia crisis of the 1990s, the Great Recession of 2008, along with national-level crises (South Africa, Tunisia, Togo, and Zimbabwe among others). Clearly, the business cycle affects the relationship between GDP and energy or electricty consumption. In time-series analysis, the phase of the business cycle must be taken into account; otherwise, the estimated parameters would be incorrect and misleading. As the focus of this study is Africa, we have reviewed several of the most pertinent works in the field. L. Esso used the Gregory and Hansen testing approach to determine the threshold cointegration for seven African states.8 E. Kebede, J. Kagochi, and C. Jolly estimated the dates of structural breaks for numerous African countries.9 Their results suggested that the first structural breaks took place between 1974 and 1979 (in Libya and Nigeria the first structural breaks occurred in 1989 just after the stock market crash in the United States and just prior to the Gulf War). However, threshold cointegration analysis is not particularly suitable in situations with multiple structural breaks. One way to overcome these problems is to divide the sample into sub-samples based on the structural breaks; yet, the exact date of these changes are not known and the researcher must determine it endogenously based on the data. However, there is no guarantee that the relationship between GDP and energy/electricity consumption changes at the same date as the break dates of the variables.10 In this paper, the Markov-Switching Vector Autoregression (MS-VAR) model is used to analyze the relationship between electricity consumption and economic growth for nine African nations over a 40-year period (1970 to 2010). This study can be described as complementary to the previous empirical papers; nonetheless, it differs from the existing literature in certain aspects. First, relative to the previous academic research, it employs MS-VAR methodology. Second, it also utilizes the Markov-Switching Granger Causality (MS-Granger causality) analysis. The MS-Granger causality approach allows for a deeper investigation of causality under different GDP regimes. The remainder of this paper is as follows: the data and methodology are identified in the subsequent section. Thereafter, we present the empirical results. The last section includes the conclusions and policy implications.

Data and Methodology Data: In this study, the relationship between electricity consumption (EC) and economic growth (GDP) was investigated using the MS-VAR method for nine African countries over the period from 1970 to 2010. The countries chosen for this

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study include Algeria, Egypt, Morocco, Nigeria, South Africa, Sudan, Togo, Tunisia, and Zimbabwe. These countries were selected based upon the availability of data on the incorporated variables. In this study, Y represents the per-capita gross domestic product. Electricity consumption (EC) is taken as LEC = log(ECt/ ECt-1) and Y as LY = log(Yt/Yt-1). The data were taken from the World Bank, International Energy Agency (IEA), and the Organization for Economic Cooperation and Development (OECD). MethodologyThe MS-VAR Analysis: The Hamilton model, which allows for positive and negative shocks, is given as:11 yt mst fyt1 mst1 ut 1

where mst is m1 0 when st = 1, and m2 > 0 when st = 2, and where ut ; iidN(0,s2) when |f| < 1. st is a discrete variable that takes on the values of 1 or 2. The Markov chain is ergodic and irreducible; a two-state Markov chain with transition probabilities pii has unconditional distribution given by Prst 1 1p22 1p11 ; Prst 2 : 2p11 p22 2p11 p22 2

As H.-M. Krolzig denoted, to obtain the impulse response functions in MSVAR models, which have autoregressive dynamics that are independent from the regime, one utilizes the MS(M)VAR(1) model below.12 The impulse-response function for MS(M)VAR(1) is yt y0 t ; . . . ; y0 tP1 9 , yt Hjt Ayt1 ut : If {ut, x t, Yt1}, the conditional expectation of yt + h is ythjt Hjthjt Ayth1jt , and jthjt F h jt and FP0 : In this situation, the impulse-response function is Xh  Ak HF hk =j where J I K 0. . . 0 i01  I K : ET =j h J k0 4 3

In the MSIA(M)VAR(1) model, if g t is g t = xt 5 yt, g t = Mxt1 + Pg t1 + et, and xt = Fxt1 + ht. In matrix form, that is represented by equation (6):

ECONOMIC GROWTH & ELECTRICITY IN AFRICA ! ! ! ! P M et gt gt1 jt jt1 ht 0 F |{z} |{z} |{z} |{z}
g t P g t1 e t

183 6

where the conditional expectation of g t is E g jg Ph g when yt th t t PM jit yt with the conditional expectation of yt+h, i1  XM E jith yth jyt ; jt 10M  I K : 0K;M E g g E yth jyt ; jt th t i1 " # !" # 0 P M h gt 0 h gt 1M  I K 0K;M 1M  I K 0K;M P : jy jy 0 F 7 The impulse-response function is represented by equation (8) ! 0 h jt  =u and ET =u h 1M  I K 0K;M P 0M;1 ! 0 h =jt  yt ET =j h 1M  I K 0K;M P : =jt

The Markov chain is ergodic, irreducible, and there does not exist an absorbing state, i.e.,  2 0; 1 for all m = 1, . . . , M, where  is ergodic or unconditional jp jp probability of regime q. MethodologyThe MS-Granger Causality Analysis: A. Warne and Z. Psaradakis et al. determined different definitions of causality based on Granger causality in the context of Markov-switching VAR models.13 F. Fallahi also utilizes Granger causalities in his analysis of the relationship between GDP and energy consumption.14 Based on the coefficients of the lagged values of LY and LEC in the equation for LEC and LY, we could determine the existence of causalities between these two variables. In the equation for LEC, if any of the coefficients of LYt are significantly different from zero, in any of the regimes, then: LY t LEC t ! " k ! f m1;st q Sk1 11;st k m2;st f
21;st

f12;st f22;st
k

! ! LY tk et : LEC tk et

It is concluded that LY(LEC) is a Granger cause of LEC(Y) in that regime. Granger causalities are detected by testing H0:f12(k)= 0 and H0:f21(k)= 0.

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Empirical Results Unit Root and Traditional Cointegration Result: For the determination of the LY and LEC integration order, in this study we utilized the point optimal tests of both G. Elliott et al. and of S. Ng and P. Perron.15 The results from the unit root tests are shown in table 1. The results indicate that the null hypothesis of the unit root cannot be rejected at the 5-percent level of significance for these variables; however, the first difference of LY and LEC appear to be stationary. Thus, it can be concluded that the LY and LEC are integrated of order one, I(1). Since the variables are integrated, we used the maximum likelihood procedure of Johansen to examine the possible existence of cointegration between LY and LEC. If the variables are I(1) and not cointegrated, then the first difference or innovations of the variables, DLY and DLEC, can be used to test for MS-Granger causality. Business Cycle Characteristics and Model Selections: For each regime, the behavior of the regime probabilities was analyzed and the probability of duration was computed. MSIA(p)VAR(q) models were selected for Algeria, Egypt, Morocco, Tunisia, Togo, and Zimbabwe; MSIAH(p)VAR(q) models were chosen for Sudan, Nigeria, and South Africa. The first difference or innovations of the variables was used for the Markov Switching-Granger Causality analysis. The MS models were selected based on the Akaike Information Criteria (AIC) and LR testing. In all models, in order to determine the number of regimes, a linear VAR is tested against a MSVAR with two regimes, and the H0 hypothesis, which hypothesizes linearity, was rejected by using the LR test statistics. A MSVAR model with two regimes was tested against a MSVAR model with three regimes; the H0 hypothesis, which specifies that there are two regimes, was rejected and the MSVAR with three regimes was accepted as the optimal model as the LR statistic was greater than the 5-percent critical value of c2. The first regime is indicative of an economic recession phase, the second regime represents a moderate growth phase, and regime three the high growth phase in the models. The estimated models show strong business cycle characteristics. The persistence of regimes is observed to change on a country-by-country basis. The models track fairly well the oil crises of 19741975, 19791980, 19891991, and the 2008 Great Recession (table 2). As expected, the total length of time for the expansion period (regime 2 and regime 3) is longer than the total length of time for the recessionary period (regime 1) in all models, with the exception of Zimbabwe.16 Regime 1 approximates recessionary dates, whereas regimes 2 and 3 show moderate and high growth periods, respectively. The first model is the MSIA(2)VAR(2) for Algeria with the results highlighted in table 3. The result of Prob(st = 1jst1 = 1) = 0.6018 and Prob(st = 2jst1 = 2) = 0.6472 demonstrates the persistence of the regimes. Furthermore, this situation is indicative of the presence of important asymmetries in the business cycle. The

ECONOMIC GROWTH & ELECTRICITY IN AFRICA Table 1

RESULTS FROM UNIT ROOT TESTS

185

MZa

MZt

MSB Algeria 0.79748 0.12764 0.44077 0.10763 Egypt 0.41273 0.10981 0.40850 0.10876

MPT

Elliott-RothenbergStock Test Statistic

Y DLY EC DLEC Y DLY EC DLEC Y DLY EC DLEC Y DLY EC DLEC Y DLY EC DLEC Y DLY EC DLEC Y DLY EC DLEC Y DLY

1.10654 14.28310 0.97627 16.3625 0.95545 12.1925 1.28896 12.3129 2.56981 13.8287 3.32372 11.9796 5.10763 25.0170 1.18349 15.8242 4.90696 13.9958 1.31626 12.6120 2.74492 14.02088 2.13023 17.9948 4.31891 17.8610 0.12782 17.9447 2.43615 13.04945

0.88244 3.99331 0.43031 3.85730 0.39435 3.41517 0.52654 4.30449

47.5715 2.80788 13.7498 1.50841 12.9442 2.21672 12.0605 2.65211 89.5931 1.84304 7.34038 2.71166 5.35116 1.37662 55.7899 1.68408 5.91110 1.78938 188.338 3.07855 30.0148 1.14379 65.5729 1.36174 5.81185 1.39871 22.9675 1.37066 124.089 2.10179

114.1140 3.466681 17.28106 1.451736 47.5977 2.940906 92.0732 2.576161 27.3645 1.982849 26.14827 2.177358 36.1098 2.216993 166.4172 1.145021 24.28940 1.817332 13.12355 2.239174 38.18072 2.46238 13.1952 1.304168 26.06389 1.694243 37.16966 1.374975 33.7311 1.39136
(continued)

Morocco 2.55057 0.99251 3.61083 0.10888 1.25312 0.37702 4.27001 0.10899 1.00239 3.41424 1.02624 3.77631 Nigeria 0.33173 0.11348 0.86713 0.11545

South Africa 1.18356 0.33347 3.63518 0.10828 2.16748 1.64669 3.19876 0.11434 1.42221 3.9897 1.84842 3.99950 1.37718 3.98097 0.07211 3.99392 2.90967 3.64984 Sudan 0.51812 0.12158 0.86771 0.10669 Togo 0.31887 0.10690 0.56419 0.10668 Tunisia 1.19437 0.10622

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THE JOURNAL OF ENERGY AND DEVELOPMENT Table 1 (continued)

RESULTS FROM UNIT ROOT TESTS Elliott-RothenbergStock Test Statistic 15.12620 1.153900 11.05394 2.413181 10.8753 1.7543 1.870000 2.970000 3.910000 r = 0 11.78 r 1 1.785 r = 0 10.41 r 1 1.101 r = 0 11.64 r 1 1.986

MZa EC DLEC Y DLY EC DLEC 1-percent level 5-percent level 10-percent level 1.47309 16.1047 3.9915 14.2775 0.96336 13.7844 13.8000 8.10000 5.70000

MZt 3.57669 4.82165

MSB 2.42803 0.10752

MPT 414.066 1.58086 5.86575 1.90004 53.4779 6.65750 1.78000 3.17000 4.45000

Zimbabwe 0.9313 0.63256 2.62298 0.11871 0.83486 0.86661 2.61710 0.11896 Asymptotic critical values 2.58000 0.17400 1.98000 0.23300 1.62000 0.27500

Algeria Nigeria Togo

Johansen cointegration results r = 0 9.98 r = 0 10.125 r 1 0.125 Egypt r 1 1.30 Morocco r = 0 10.06 r = 0 11.63 r 1 0.425 South Africa r 1 1.03 Sudan r = 0 12.165 r 1 1.734 Tunisia r = 0 8.60 r 0 1.12 Zimbabwe

growth regime of the economy is the most persistent phase in the Algerian economy. While the regime 1 is estimated to last on average 2.51 years, regime 2 is 2.83 years. In table 4, the MSIA(3)VAR(1) offered the best econometric performance for Egypt. The transition probabilities, Prob(st = 1jst1 = 1) = 0.8511, Prob(st = 2jst1 = 2) = 0.8491, and Prob(st = 3jst1 = 3) = 0.5681, suggest the persistence of the recessionary phase (regime 1) but also of the moderate growth phase (regime 2). The ergodic probabilities point to regime 2 as being the most dominant as can be seen in the transition probabilities (p11 = 0.1573, p22 = 0.6448, and p33 = 0.1979), which also demonstrate the asymmetries within the business cycle in Egypt. Regime 2 is determined to last, on average, 6.63 years for Egypt, while the average duration of the high growth phase is 1.75 years and the recessionary phase has an average duration of 1 year. Turning to another North African nation, Morocco, we find that the MSIA(2) VAR(2) model offered important results in the analysis, which are given in table 5. The regime 1 tends to last 2.18 years on average, while regime 2 also is persistent (3.82 years). The results of Prob(st = 1jst1 = 1) = 0.5422 and Prob(st = 2jst1 = 2) = 0.7382, which highlight a persistence of regimes in the case of Morocco. The ergodic probabilities indicate that regime 2 is the most dominant. The transition

ECONOMIC GROWTH & ELECTRICITY IN AFRICA Table 2

REGIME 1 (RECESSIONARY PHASE) DATING ANALYSIS Algeria 1975:1 1975:1 1979:1 1980:1 1985:1 1987:1 1991:1 1995:1 1997:1 1997:1 2000:1 2001:1 2005:1 2006:1 Nigeria 1975:1 1975:1 1978:1 1979:1 1981:1 1981:1 1983:1 1984:1 1987:1 1987:1 2002:1 2002:1 Togo 1975:1 1975:1 1979:1 1979:1 1981:1 1983:1 1991:1 1993:1 1999:1 2001:1 2009:1 2009:1 Egypt 1973:1 1973:1 1987:1 1987:1 1990:1 1991:1 2009:1 2009:1

187

Morocco 1977:1 1977:1 1981:1 1983:1 1987:1 1987:1 1992:1 1994:1 1995:1 1997:1 1999:1 2000:1 2009:1 2009:1 Sudan 1973:1 1973:1 1978:1 1980:1 1985:1 1985:1 1988:1 1990:1 2009:1 2009:1 Zimbabwe 1975:1 1975:1 1977:1 1978:1 1983:1 1984:1 1987:1 1987:1 1992:1 1993:1 1995:1 1995:1 1997:1 2003:1 2006:1 2009:1

South Africa 1975:1 1975:1 1981:1 1983:1 1985:1 1985:1 1989:1 1992:1 1997:1 1998:1 2008:1 2008:1 Tunisia 1974:1 1974:1 1978:1 1978:1 1981:1 1981:1 1988:1 1988:1 1994:1 1995:1 2002:1 2002:1 2009:1 2009:1

probabilities for Morocco are p11 = 0.3638 and p22 = 0.6362, which demonstrate the significance of asymmetries in Moroccos business cycle. The results suggest that regime 2 is the most persistent of the three regimes that were analyzed. The MSIAH(3)VAR(1) model was determined to be the best suited for modeling Sudan (table 6). The first regime of the economy tends to last an average of 2.48 years. Prob(st = 1jst1 = 1) = 0.5962, Prob(st = 2jst1 = 2) = 0.7445, and Prob(st = 3jst1 = 3) = 0.5996 suggest the persistence of the moderate growth period. Finally, high growth periods tend to last 2.50 years on average, similar to recessionary periods (2.48 years). Regime 2 is found to be the most persistent, which also is confirmed by the average duration (3.91 years) of each regime. The computed probability, (i.e., Prob(st = 3jst1 = 1) = 0.00095) reflects the low chance that a recession is followed by a period of high growth; on the other hand, the computed probability, (i.e., Prob(st = 2jst1 = 1) = 0.4028) reflects the relatively higher probability that a recession is followed by a moderate growth phase. In the case of Tunisia, the MSIA(3)VAR(1) model provided the best econometric performance (results are presented in table 7). The coefficient of the

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THE JOURNAL OF ENERGY AND DEVELOPMENT Table 3

ALGERIA: MSIA(2)VAR(2) MODEL RESULTS (Estimation sample 1973 to 2010) Regime 1 DLY 0.0289 (2.7884) 0.6480 (3.2157) 0.0672 (0.3602) 0.3868 (3.2856) 0.1103 (2.1536) Regime 1 0.6018 0.3528 DLEC 0.0466 (2.2934) 2.0298 (5.3435) 1.2700 (3.5375) 0.6337 (2.4473) 0.7396 (3.5590) Regime 2 0.3982 0.6472 Regime 2 DLY 0.0097 (1.0926) 0.2956 (1.7233) 0.0982 (1.3003) 0.1632 (3.8304) 0.0924 (2.0750) Probability 0.4698 0.5302 DLEC 0.0343 (2.2146) 1.0316 (3.1290) 0.1306 (2.9299) 0.5728 (1.9255) 0.3114 (1.9996) Duration (in years) 2.51 2.83

Con (R.1) DLY-1 DLY-2 DLEC-1 DLEC-2 Transition probabilities Regime 1 Regime 2

Con (R.2) DLY-1 DLY-2 DLEC-1 DLEC-2

Regime 1 Regime 2

Log-likelihood = 168.6015, Linear system = 156.0004 AIC criterion = 7.9779, Linear system = 7.9445 LR linearity test = 25.2021, Chi(10) = [0.0050], Chi(12) = [0.0139], DAVIES = [0.0942] StdResids: Vector portmanteau (5): Chi(12) = 10.0809 [0.6089] StdResids: Vector normality test: Chi(4) = 2.8850 [0.5773] StdResids: Vector hetero test: Chi(24) = 18.2282 [0.7918] F(24,61) = 0.5924 [0.9215] StdResids: Vector hetero-X test: Chi(42) = 32.8851 [0.8421] F(42,45) = 0.5019 [0.9870] PredError: Vector portmanteau (5): Chi(12) = 11.3509 [0.4991] PredError: Vector normality test: Chi(4) = 3.0280 [0.5532] PredError: Vector hetero test: Chi(24) = 51.4426 [0.0009] F(24,61) = 3.1931 [0.0001] PredError: Vector hetero-X test: Chi(42) = 64.2771 [0.0150] F(42,45) = 2.0803 [0.0085] VAR Error: Vector portmanteau (5): Chi(12) = 9.2748 [0.6793] VAR Error: Vector normality test: Chi(4) = 2.2340 [0.6928] VAR Error: Vector hetero test: Chi(24) = 30.6747 [0.1634] F(24,61) = 1.1057 [0.3651]

distributed-lag component of the EC variable is positive and statistically significant while the transition probabilities, Prob(st = 1jst1 =1) = 0.5245, Prob(st = 2jst1 = 2) = 0.8690, and Prob(st = 3jst1 = 3) = 0.6603, suggest the persistence of the moderate growth phase in the Tunisian economy. Regime 2 is determined to last on average 7.67 years, whereas the average duration of regime 3 lasts an average of 2.94 years. The ergodic probabilities demonstrate that regime 2 is the most dominant, and the transition probabilities, p11 = 0.2477, p22 = 0.6582, and p33 = 0.0941, highlight the importance of asymmetries in the Tunisian business cycle.

ECONOMIC GROWTH & ELECTRICITY IN AFRICA Table 4

EGYPT: MSIA(3)VAR(1) MODEL RESULTS (Estimation sample 1972 to 2010) Regime 1 DLY Con (R.1) DLY-1 DLEC-1 0.0268 (2.0013) 2.7447 (1.0986) 2.345 (3.7001) DLEC Regime 2 DLY DLEC Regime 3 DLY DLEC

189

0.0136 Con (R.2) 0.0232 0.0509 Con (R.3) 0.0050 0.1546 (2.1045) (0.1425) (1.78) (1.112) (0.125) 6.0784 (3.045) 2.868 (2.4614) DLY-1 DLEC-1 0.2774 (2.001) 0.3487 (2.787) DLY-1 0.2513 0.6122 (1.999) (2.2212)

0.0763 0.0799 DLEC-1 0.5599 0.4495 (2.549) (1.897) (3.001) (1.110) Duration (in years) 1.00 6.63 1.75

Transition probabilities Regime 1 Regime 2 Regime 3 Regime 1 0.8511 0.0185 0.1304 Regime 1 Regime 2 0.0769 0.8491 0.0741 Regime 2 Regime 3 0.0001 0.0432 0.5681 Regime 3 Probabilities 0.1573 0.6448 0.1979

Log-likelihood = 182.9413, Linear system = 140.9782 AIC criterion = 8.4293, Linear system = 7.1340 LR linearity test = 83.9260, Chi(12) = [0.0000], Chi(18) = [0.0000], DAVIES = [0.0000] StdResids: Vector portmanteau (5): Chi(16) = 25.8103 [0.0568] StdResids: Vector normality test: Chi(4) = 5.3610 [0.2522] StdResids: Vector hetero test: Chi(12) = 10.7119 [0.5538] F(12,74) = 0.7845 [0.6644] StdResids: Vector hetero-X test: Chi(15) = 15.2032 [0.4369] F(15,74) = 0.9280 [0.5378] PredError: Vector portmanteau (5): Chi(16) = 6.6390 [0.9796] PredError: Vector normality test: Chi(4) = 42.6151 [0.0000] PredError: Vector hetero test: Chi(12) = 24.8735 [0.0154] F(12,74) = 2.5883 [0.0063] PredError: Vector hetero-X test: Chi(15) = 28.8434 [0.0168] F(15,74) = 2.2949 [0.0099] VAR Error: Vector portmanteau (5): Chi(16) = 11.4574 [0.7804] VAR Error: Vector normality test: Chi(4) = 39.3376 [0.0000] VAR Error: Vector hetero test: Chi(12) = 38.1563 [0.0001], F(12,74) = 4.4077 [0.000]

The MSIAH(3)VAR(4) offered the best econometric performance for modeling South Africa (results in table 8). The first regime tends to last 2.01 years on average, while regime 2 is persistent (2.59 years). High growth periods tend to last 2.56 years on average. Prob(st = 1jst1 = 1) = 0.5020, Prob(st = 2jst1 = 2) = 0.6145, and Prob(st = 3jst1 = 3) = 0.6087 suggest the persistence of moderate growth in the South African economy. The computed probability, i.e., Prob(st = 3jst1 = 1) = 0.0922, reflects the low probability that a recession is followed by a period of high growth; alternatively, Prob(st = 2jst1 = 1) = 0.4058 reflects the much greater probability that a recession is followed by a period of moderate growth. The ergodic probabilities point to the dominance of regime 1. Similar to the findings in the other African

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THE JOURNAL OF ENERGY AND DEVELOPMENT Table 5

MOROCCO: MSIA(2)VAR(2) MODEL RESULTS (Estimation sample 1973 to 2010) Regime 1 DLY 0.0502 (2.1027) 1.3660 (2.0012) 0.5329 (0.1327) 0.9676 (2.2207) 0.4047 (1.9005) DLEC 0.0613 (1.981) 0.2792 (2.2245) 0.3115 (2.0179) 0.3502 (1.053) 0.1732 (0.3054) DLY 0.0800 (1.1178) 0.0069 (1.9903) 0.0706 (0.7089) 0.4061 (2.0125) 0.3033 (3.786) Regime 2 DLEC 0.0379 (1.789) 0.1524 (2.253) 0.5661 (1.989) 0.0031 (3.0128) 0.1066 (1.1425) Duration (in years) 2.18 3.82

Con (R.1) DLY-1 DLY-2 DLEC-1 DLEC-2

Con (R.2) DLY-1 DLY-2 DLEC-1 DLEC-2

Transition probabilities Regime 1 0.5422 0.2618 Regime 2 0.4578 0.7382 Probability 0.3638 0.6362

Regime 1 Regime 2

Regime 1 Regime 2

Log-likelihood = 134.8018, Linear system = 124.8006 AIC criterion = 6.1001, Linear system = 6.2111 LR linearity test = 40.0023, Chi(10) = [0.0029], Chi(12) = [0.0067], DAVIES = [0.0407] StdResids: Vector portmanteau (5): Chi(12) = 9.9319 [0.6219] StdResids: Vector normality test: Chi(4) = 36.2950 [0.000] StdResids: Vector hetero test: Chi(24) = 12.4049 [0.9750] F(24,61) = 0.3504 [0.9970] StdResids: Vector hetero-X test: Chi(42) = 25.8813 [0.9760] F(42,45) = 0.3596 [0.9994] PredError: Vector portmanteau (5): Chi(12) = 9.1543 [0.6897] PredError: Vector normality test: Chi(4) = 41.8366 [0.0000] PredError: Vector hetero test: Chi(24) = 23.4776 [0.4918] F(24,61) = 0.7959 [0.7272] PredError: Vector hetero-X test: Chi(42) = 37.4917 [0.6690] F(42,45) = 0.6497 [0.9193] VAR Error: Vector portmanteau (5): Chi(12) = 9.3263 [0.6748] VAR Error: Vector normality test: Chi(4) = 35.6121 [0.0000] VAR Error: Vector hetero test: Chi(24) = 15.7027 [0.8985] F(24,61) = 0.4644 [0.9799]

nations, the transition probabilities for South Africa, p11 = 0.3007, p22 = 0.3165, and p33 = 0.3828, show the evidence of asymmetries in the countrys business cycle. For Nigeria, the MSIAH(3)VAR(1) provided the best econometric modeling (see results in table 9). The transition probabilities, Prob(st = 1jst1 = 1) = 0.6454, Prob(st = 2jst1 = 2) = 0.9302, and Prob(st = 3jst1 = 3) = 0.5167, suggest the persistence of the moderate growth regime. The ergodic probabilities indicate that

Table 6
SUDAN: MSIAH(3)VAR(1) MODEL RESULTS (Estimation sample 1973 to 2010) Regime 2 DLEC DLY DLEC DLY Regime 3 DLEC

Regime 1

DLY

Con (R.1) 0.0441 (3.128) DLY-1 DLEC-1 Regime 3 0.00095 0.1555 0.5996 Regime 1 Regime 2 Regime 3 0.6877 (3.370) Probabilities 0.2350 0.4666 0.2984 0.1067 (1.480) DLEC-1 DLY-1 0.1833 (0.1425) Regime 2 0.4028 0.7445 0.0824 0.0171 (0.0854) 0.4663 (6.440)

0.0310 (1.1239) Con (R.2) Con (R.3)

0.0094 (2.012)

0.0267 (13.330)

0.0402 (0.559)

0.0232 0.2827 (0.830) (10.205) 0.5541 2.0011 (19.953) (7.202) 0.5675 0.9481 (2.046) (1.402) Duration (in years) 2.48 3.91 2.50

DLY-1

0.1927 (0.1259)

DLEC-1

0.3162 (5.7861)

ECONOMIC GROWTH & ELECTRICITY IN AFRICA

Transition probabilities Regime 1 Regime 1 0.5962 Regime 2 0.1000 Regime 3 0.3179

Log-likelihood = 102.5468, Linear system = 83.8557; AIC criterion = 3.7593, Linear system = 4.0463 LR linearity test = 37.3823, Chi(18) = [0.0047], Chi(24) = [0.0401], DAVIES = [0.1101]; StdResids: Vector portmanteau (5): Chi(16) = 25.0348 [0.0692] StdResids: Vector normality test: Chi(4) = 1.5487 [0.8181]; StdResids: Vector hetero test: Chi(12) = 4.8822 [0.9618] F(12,74) = 0.3299 [0.9813] StdResids: Vector hetero-X test: Chi(15) = 5.9924 [0.9799] F(15,74) = 0.3181 [0.9919] PredError: Vector portmanteau (5): Chi(16) = 24.2187 [0.0848]; PredError: Vector normality test: Chi(4) = 6.7895 [0.1474] PredError: Vector hetero test: Chi(12) = 11.9248 [0.4517] F(12,74) = 0.8882 [0.5624] PredError: Vector hetero-X test: Chi(15) = 16.8365 [0.3287] F(15,74) = 1.0387 [0.4272] VAR Error: Vector portmanteau (5): Chi(16) = 20.1651 [0.2129]; VAR Error: Vector normality test: Chi(4) = 11.9095 [0.0180] VAR Error: Vector hetero test: Chi(12) = 9.1953 [0.6862] F(12,74) = 0.6784 [0.7667]

191

Table 7
TUNISIA: MSIA(3)VAR(1) MODEL RESULTS (Estimation sample 1973 to 2010) Regime 2 DLEC DLY DLEC DLY Regime 3 DLEC

192

Regime 1

DLY

Con (R.1) 0.4694 (15.053) DLY-1 DLEC-1 Regime 3 0.1290 0.0096 0.6603 Regime 1 Regime 2 Regime 3 0.0940 (8.247) 0.6181 (1.982) DLY-1 DLEC-1 0.1763 (5.655) 0.445 (3.912) 0.0257 (8.238)

0.0222 (1.947) Con (R.2) Con (R.3)

0.0351 (1.125)

0.0611 (5.360)

0.0303 (0.973)

0.0215 0.1726 (1.888) (2.225) 0.0996 3.6167 (8.703) (11.599) 0.1384 1.6674 (12.133) (5.348) Duration (in years) 2.10 7.67 2.94

DLY-1

0.6005 (5.267)

DLEC-1

0.2408 (2.112)

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Transition probabilities Regime 1 Regime 1 0.5245 Regime 2 0.1004 Regime 3 0.3007

Regime 2 0.3465 0.8690 0.0037

Probabilities 0.2477 0.6582 0.0941

Log-likelihood = 171.5928, Linear system = 145.5875; AIC criterion = 7.8158, Linear system = 7.3831 LR linearity test = 52.0105, Chi(12) = [0.0000], Chi(18) = [0.0000], DAVIES = [0.0000]; StdResids: Vector portmanteau (5): Chi(16) = 25.0348 [0.0692] StdResids: Vector normality test: Chi(4) = 1.5481 [0.8181]; StdResids: Vector hetero test: Chi(12) = 4.8822 [0.9618] F(12,74) = 0.3299 [0.9813] StdResids: Vector hetero-X test: Chi(15) = 5.9924 [0.9799] F(15,74) = 0.3181 [0.9919] PredError: Vector portmanteau (5): Chi(16) = 24.2187 [0.0848]; PredError: Vector normality test: Chi(4) = 6.7895 [0.1474] PredError: Vector hetero test: Chi(12) = 11.9248 [0.4517] F(12,74) = 0.8882 [0.5624] PredError: Vector hetero-X test: Chi(15) = 16.8365 [0.3287] F(15,74) = 1.0387 [0.4272] VAR Error: Vector portmanteau (5): Chi(16) = 20.1651 [0.2129]; VAR Error: Vector normality test: Chi(4) = 11.9095 [0.0180] VAR Error: Vector hetero test: Chi(12) = 9.1953 [0.6862] F(12,74) = 0.6784 [0.7667]

Table 8
SOUTH AFRICA: MSIAH(3)VAR(4) MODEL RESULTS (Estimation sample 1969 to 2010) Regime 2 DLY DLEC DLY Regime 3 DLEC

Regime 1

DLY

DLEC

Con (R.1) DLY-1 DLY-2 DLY-3 DLY-4 DLEC-1 DLEC-2 DLEC-3 DLEC-4 0.0949 (1.879) 0.0070 (1.378) 0.2939 (5.821) 0.2370 (4.693) 0.3878 (2.96) 0.3545 (2.001) 0.3600 (2.753) 0.3184 (2.433) 0.3851 (7.627) 0.2168 (6.583) 0.3246 (6.445) 0.5243 (4.009) DLY-3 DLY-4 DLEC-1 DLEC-2 DLEC-3 DLEC-4 0.2463 (3.8789) DLY-2 0.1631 (4.877) 0.4272 (8.544) DLY-1 0.4489 (2.0991)

0.0310 (6.14) Con (R.2) 0.0159 Con (R.3) 0.1239 (2.453) 0.3064 (6.0638) 0.0624 (1.2458) 0.0626 (2.406) 0.0323 (6.4062) 0.1818 (3.600) 0.0490 (9.708) 0.2015 (3.991)

0.0512 (3.91)

0.0259 (5.124)

0.0224 (0.4437)

0.0375 (2.86) 0.2744 (2.098) 0.6199 (4.744) 0.6259 (4.7889) 0.5093 (3.895) 0.3924 (3.0015) 0.2460 (1.8813) 0.1392 (10.648) 0.4362 (3.336)
(continued)

DLY-1

1.0066 (19.93)

0.6555 (1.9979)

DLY-2

0.0233 (4.61)

0.1762 (2.826)

DLY-3

0.0332 (6.57)

0.5510 (4.2143)

DLY-4

0.3268 (6.47)

0.7284 (5.5709)

DLEC-1

0.8094 (16.03)

1.2938 (9.8995)

DLEC-2

0.1048 (2.755)

0.2694 (2.0605)

ECONOMIC GROWTH & ELECTRICITY IN AFRICA

DLEC-3

0.3269 (6.475)

0.1594 (1.219)

DLEC-4

0.3769 (7.465)

0.3605 (2.757)

193

Table 8 (continued)
SOUTH AFRICA: MSIAH(3)VAR(4) MODEL RESULTS (Estimation sample 1969 to 2010)

194

Transition probabilities Regime 1 Regime 1 0.5020 Regime 2 0.025 Regime 3 0.3612 Regime 3 0.0922 0.3605 0.6087 Regime 1 Regime 2 Regime 3 Probabilities 0.3007 0.3165 0.3828

Regime 2 0.4058 0.6145 0.0301

Duration (in years) 2.01 2.59 2.56

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Log-likelihood = 206.3896, Linear system = 165.6000 AIC = 8.4347, Linear system = 8.5059 LR linearity test = 81.5792, Chi(36) = [0.0000], Chi(42) = [0.0002], DAVIES = [0.0011] StdResids: Vector portmanteau (9): Chi(20) = 32.5308 [0.0124] StdResids: Vector normality test: Chi(4) = 9.0422 [0.0601] StdResids: Vector hetero test: Chi(48) = 40.1758 [0.7816] F(48,21) = 0.3121 [0.9996] PredError: Vector portmanteau (9): Chi(20) = 22.1476 [0.3326] PredError: Vector hetero test: Chi(48) = 62.2354 [0.0813] F(48,21) = 0.8197 [0.7218] PredError: Vector normality test: Chi(4) = 12.5988 [0.0134] VAR Error: Vector portmanteau (9): Chi(20) = 23.3649 [0.2712] VAR Error: Vector normality test: Chi(4) = 3.0898 [0.5429] VAR Error: Vector hetero test: Chi(48) = 44.9525 [0.5985] F(48,21) = 0.3780 [0.9973]

ECONOMIC GROWTH & ELECTRICITY IN AFRICA

195

the dominant regime is the second one. The transition probabilities, p11 = 0.2115, p22 = 0.6232, and p33 = 0.1654, mirror the other countries in our study with their asymmetric business cycles. The results for the nation of Togo, for which we employed a MSIA(3)VAR(4) model, are presented in table 10. The first regime economy tends to last 2.60 years on average, while regime 2the moderate growth regimeis by far the most persistent (8.43 years on average). Regime 3, which corresponds to the high growth economic scenario, has an average duration of 2.17 years. The results suggest a persistence of the economic regimes: Prob(st = 1jst1 = 1) = 0.6160, Prob(st = 2jst1 = 2) = 0.9426, and Prob(st = 3jst1 = 3) = 0.7599. For the last country in our sample, Zimbabwe, the MSIA(2)VAR(4) model presents the best econometric performance (see table 11 for results). In the case of Zimbabwe, Prob(st = 1jst1 = 1) = 0.6074 and Prob(st = 2jst1 = 2) = 0.5475 suggest the persistence of the recessionary phase. Regime 2 has an average duration of 2.21 years; whereas, the average duration of the recessionary phase is slightly longer at 2.55 years. MS-VAR and MS-Granger Causality Results: For the first country we modeled, Algeria, we used the MSIA(2)VAR(2) with the results presented in table 3. In this model, the coefficients of electricity consumption (EC) are positive in regime 1. The estimated coefficients of electricity consumption innovations (DLEC) in equation 1 are statistically significant at the conventional levels in the regimes. In regime 2, the coefficients of the DLY-1 and DLY-2 for equation 2 are negative. The dependent variable of the second equation is DLEC, that is, innovations of electricity consumption. For the equation 1 in the regimes, that is, for the equation of LY, the EC appears to be the Granger cause of economic growth. Therefore, it is determined that Granger causality exists from EC to Y in equation 1 in both regimes 1 and 2. According to the second equation obtained for the first and the second regime, which is the equation for LEC, Y appears to be the Granger cause of energy consumption and the direction of causality is from LY to EC for equation 2. In summation, we found some evidence of bi-directional Granger causality between energy consumption and GDP in the recession and growth periods for Algeria. For Egypt, the MSIA(3)VAR(1) model presented the best econometric performance with the results and all of the coefficients being statistically significant at the conventional levels as can be seen in table 4. The coefficient of the distributed-lag component of the EC variable is statistically significant at conventional levels. The estimated coefficients of GDP innovations (DLY) in equation 2 are statistically significant and positive for all three regimes. The estimated coefficients of electricity consumption innovations (DLEC) in equation 1 are statistically significant at the conventional level in all regimes with the coefficients of DLEC for regime 2 being negative. The dependent variable of the second equation in all regimes is DLEC, which represents innovations of electricity

Table 9
NIGERIA: MSIAH(3)VAR(1) MODEL RESULTS (Estimation sample 1973 to 2010) Regime 2 DLY DLEC DLY Regime 3 DLEC

196

Regime 1

DLY

DLEC

Con (R.1) DLY-1 DLEC-1 Regime 3 0.3531 0.0498 0.5167 Regime 1 Regime 2 Regime 3 Probabilities 0.2115 0.6232 0.1654 0.0302 (7.543) DLEC-1 0.5365 (1.724) 0.6516 (3.832) DLY-1 1.8845 (2.546)

0.0542 (1.1436) Con (R.2) Con (R.3)

0.0966 (0.5195)

0.0045 (0.2591)

0.0037 (0.510)

0.0175 (0.574) 0.0444 (1.464) 0.1084 (2.4587)

0.1944 (1.5963) 0.8291 (6.796) 0.3941 (2.785) Duration (in years) 2.55 8.32 1.46

DLY-1

0.6802 (3.965)

1.4115 (7.5928)

DLEC-1

0.1392 (2.9421)

0.4538 (0.2452)

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Transition probabilities Regime 1 Regime 1 0.6454 Regime 2 0.0100 Regime 3 0.3754

Regime 2 0.0015 0.9302 0.1080

Log-likelihood = 113.8127, Linear system = 75.3041; AIC criterion = 4.3683, Linear system = 3.5840 LR linearity test = 77.0173, Chi(18) = [0.0000], Chi(24) = [0.0000], DAVIES = [0.0000]; StdResids: Vector portmanteau (5): Chi(16) = 18.4508 [0.2982] StdResids: Vector normality test: Chi(4) = 5.3940 [0.2492]; StdResids: Vector hetero test: Chi(12) = 11.2666 [0.5062] F(12,74) = 0.8254 [0.6240] StdResids: Vector hetero-X test: Chi(15) = 17.2973 [0.3014] F(15,74) = 1.1019 [0.3700] PredError: Vector portmanteau (5): Chi(16) = 22.0079 [0.1429]; PredError: Vector normality test: Chi(4) = 8.6791 [0.0696] PredError: Vector hetero test: Chi(12) = 14.3501 [0.2789] F(12,74) = 1.0861 [0.3842] PredError: Vector hetero-X test: Chi(15) = 14.5490 [0.4844] F(15,74) = 0.8492 [0.6213] VAR Error: Vector portmanteau (5): Chi(16) = 25.0175 [0.0695]; VAR Error: Vector normality test: Chi(4) = 7.4082 [0.1158] VAR Error: Vector hetero test: Chi(12) = 21.9931 [0.0376] F(12,74) = 1.9650 [0.0398]

Table 10
TOGO: MSIA(3)VAR(4) MODEL RESULTS (Estimation sample 1974 to 2009) Regime 2 DLY DLEC DLY Regime 3 DLEC

Regime 1

DLY

DLEC

Con (R.1) DLY-1 DLY-2 DLY-3 DLY-4 DLEC-1 DLEC-2 DLEC-3 DLEC-4 0.7173 (5.554) 0.0314 (0.246) 0.1318 (10.76) 0.1361 (10.79) 0.0154 (5.34) 0.0890 (3.068) 0.1750 (6.069) 0.1462 (5.269) 0.2004 (2.099) 0.0569 (1.896) 0.2794 (2.146) 0.9705 (3.381) DLY-3 DLY-4 DLEC-1 DLEC-2 DLEC-3 DLEC-4 0.0345 (2.65) DLY-2 0.2405 (2.67) 0.1070 (8.224) DLY-1 0.0234 (0.816) 0.2555 (2.001) 0.4550 (3.507) 0.4933 (3.808) 0.9997 (8.325) 0.0637 (4.887) 0.2752 (2.756) 1.3571 (10.469) 0.3218 (1.246)

0.0359 (2.779) Con (R.2) Con (R.3)

0.0108 (0.375)

0.0122 (1.001)

0.0387 (1.357)

0.0330 (2.538)

0.1645 (5.714) 2.1988 (7.582) 0.7412 (2.555) 1.0183 (3.546) 0.5352 (18.818) 0.6945 (2.413) 0.8454 (-2.2458) 0.7005 (2.142) 1.010 (0.790)
(continued)

DLY-1

0.1557 (1.206)

0.9861 (3.001)

DLY-2

0.5825 (4.83)

1.0183 (3.636)

DLY-3

1.3227 (10.285)

5.5971 (5.901)

DLY-4

0.2184 (1.891)

3.4351 (11.986)

DLEC-1

0.3112 (2.600)

0.5530 (0.126)

DLEC-2

0.05484 (4.57)

0.04313 (1.535)

ECONOMIC GROWTH & ELECTRICITY IN AFRICA

DLEC-3

0.2480 (1.923)

1.2347 (4.096)

DLEC-4

0.2063 (17.180)

0.8684 (1.283)

197

Table 10 (continued)
TOGO: MSIA(3)VAR(4) MODEL RESULTS (Estimation sample 1974 to 2009)

198

Transition probabilities Regime 1 Regime 1 0.6160 Regime 2 0.0374 Regime 3 0.2381 Regime 3 0.1402 0.0100 0.7599 Regime 1 Regime 2 Regime 3 Probabilities 0.1909 0.6093 0.1998

Regime 2 0.2438 0.9426 0.0020

Duration (in years) 2.60 8.43 2.17

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Log-likelihood = 163.0701, Linear system = 82.2293 AIC = 5.8865, Linear system = 3.6017 LR linearity test = 161.6815, Chi(36) = [0.0000], Chi(42) = [0.0000], DAVIES = [0.0000] StdResids: Vector portmanteau (9): Chi(20) = 24.9259 [0.2043] StdResids: Vector normality test: Chi(4) = 17.8478 [0.0013] StdResids: Vector hetero test: Chi(48) = 43.9172 [0.6408] F(48,21) = 0.3690 [0.9978] StdResids: Vector hetero-X test: Chi (99) = 102.0000 [0.3981] F(99, 29)= 0.1692 [0.0000] PredErrors: Vector portmanteau (9): Chi(20) = 29.5392 [0.0777] PredErrors: Vector normality test: Chi(4) = 0.8040 [0.9379] PredErrors: Vector hetero test: Chi(48) = 59.6213 [0.1212] F(48,21) = 0.6569 [0.8764] PredErrors: Vector hetero X-test: Chi (96) = 99.0000 [0.3965] F(96,29) = 0.3025 [0.0000] VAR Errors: Vector portmanteau (9): Chi(20) = 26.0665 [0.1636] VAR Errors: Vector normality test : Chi(4) = 12.2172 [0.0158] VAR Errors: Vector hetero test: Chi(48) = 39.9649 [0.7887] F(48,18) = 0.2793 [0.9998]

ECONOMIC GROWTH & ELECTRICITY IN AFRICA Table 11

ZIMBABWE: MSIA(2)VAR(4) MODEL RESULTS (Estimation sample 1974 to 2010) Regime 1 DLY 0.0259 (0.987) 0.2210 (8.25) 0.2656 (7.245) 0.0452 (6.426) 0.4428 (1.666) 0.1480 (5.552) 1.2878 (4.067) 0.2907 (1.536) 0.8853 (3.826) DLEC 0.0115 (0.405) 0.5190 (8.025) 0.1714 (4.652) 0.0108 (0.386) 0.3020 (5.145) 0.1337 (3.642) 0.1997 (0.135) 0.0110 (0.824) 0.1206 (4.307) Regime 2 0.3926 0.5475 DLY 0.0298 (1.142) 0.3813 (4.148) 0.0341 (1.311) 0.4219 (6.264) 0.3659 (5.012) 0.7507 (2.620) 0.8817 (3.085) 0.4088 (2.790) 0.0516 (1.907) Probabilities 0.5355 0.4645 Regime 2 DLEC 0.0315 (1.523) 0.7397 (2.645) 0.7416 (3.52) 0.2393 (8.356) 0.0270 (0.936) 0.0466 (2.238) 0.7145 (2.536) 0.4427 (1.557) 0.0494 (1.689)

199

Con (R.1) DLY-1 DLY-2 DLY-3 DLY-4 DLEC-1 DLEC-2 DLEC-3 DLEC-4

Con (R.2) DLY-1 DLY-2 DLY-3 DLY-4 DLEC-1 DLEC-2 DLEC-3 DLEC-4

Transition probabilities Regime 1 Regime 1 0.6074 Regime 2 0.4525

Regime 1 Regime 2

Duration (in years) 2.55 2.21

Log-likelihood = 137.9320, Linear system = 114.4792 AIC = 5.8747, Linear system = 5.6654 LR linearity test = 46.9054, Chi(18) = [0.0002], Chi(20) = [0.0006], DAVIES = [0.0072] StdResids: Vector portmanteau (9): Chi(20) = 22.4051 [0.3189] StdResids: Vector normality test: Chi(4) = 14.6649 [0.0054] StdResids: Vector hetero test: Chi(48) = 36.4280 [0.8892] F(48,18) = 0.2444 [1.000] StdResids: Vector hetero-X test: Chi(96)= 99.0000 [0.3965] F(96,29)= 0.0996 [0.0000] PredError: Vector portmanteau (9): Chi(20) = 22.1476 [0.3326] PredError: Vector normality test: Chi(4) = 12.5988 [0.0134] PredError: Vector hetero test: Chi(48) = 62.2354 [0.0813] F(48,21) = 0.8197 [0.7218] VAR Error: Vector portmanteau (9): Chi(20) = 23.3649 [0.2712] VAR Error: Vector normality test: Chi(4) = 3.0898 [0.5429] VAR Error: Vector hetero test: Chi(48) = 44.9525 [0.5985] F(48,21) = 0.3780 [0.9973]

200

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consumption. In the first equation for the first, second and third regimethat is for the equation of LYthe EC appears to be the Granger cause of economic growth. It is determined that Granger causality exists from EC to LY for equation 1 in regimes 1, 2, and 3. According to the second equation obtained for the first, second, and third regime, that is, the equation for LEC, Y appears to be the Granger cause of energy consumption and the direction of causality is from LY to EC for equation 2. To summarize our findings of causality for Egypt, we found some evidence of bi-directional Granger causality between energy consumption and GDP in a recession, moderate growth, and high growth periods of the economy. The MSIA(2)VAR(2) model offered important results for Morocco (see table 5). The estimated coefficients of electricity consumption innovations (DLEC) are significant for the first and second regime. According to the first equation of the first and second regime, that is, the equation for LY, the EC appears to be the Granger cause of GDP; regarding the second equation of the first and second regimei.e., the equation for LECthe LY appears to be the Granger cause of electricity consumption. Thus, we found some evidence of bi-directional Granger causality between electricity consumption and LY in the recession and growth regimes in the case of Morocco. For the country of Sudan, the MSIAH(3)VAR(1) model was determined to provide the best econometric results, which are available in table 6. Regime 1 approximates the recessionary dates. Regimes 2 and 3 show the moderate and high growth regimes, respectively. The estimated coefficients of electricity consumption innovations (DLEC) in equation 1 are statistically significant at convetional levels under all three regimes. According to first equation of the first, second, and third regime, which is the equation for LY, the EC appears to be the Granger cause of Y. In the instance of the second equation (that is, the equation for LEC), the Y appears to be the Granger cause of electricity consumption in the first, second, and third regime. We established that the MSIA(3)VAR(1) model presented the best econometric performance for the nation of Tunisia (see table 7). The estimated coefficients of EC innovations (DLEC) were significant in the first, second, and third regimes. According to first equation of the first, second, and third regimesthat is, the equation for LYthe EC appears to be the Granger cause of GDP; in the case of the second equation of all three regimesi.e., the equation for LECthe GDP appears to be the Granger cause of electricity consumption. For South Africa, a MSIAH(3)VAR(4) model was utilized with the results shown in table 8. The estimated coefficients of electricty consumption innovations (DLEC) and economic growth innovations (DLY) are statistically significant at conventional levels in the regimes; however, the estimated coefficients of the DLEC-3 in equation 2 in regime 1 and the DLEC-4 in equation 1 in regime 2 and the DLEC-2 in equation 2 in regime 3 are not. In equations 1 and 2 of the regimes,

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the estimated coefficients of electricity consumption and Y are statistically significant at conventional levels. According to the first equationthe equation for LYthe EC appears to be the Granger cause of GDP in the regimes, and in the second equation (which is the equation for LEC) the GDP appears to be the Granger cause of electricity consumption for the regimes. To sum up the results, there is bi-directional Granger causality between electricity consumption and the GDP in the regimes for South Africa. For Nigeria, we established that the MSIAH(3)VAR(1) model offered the best econometric performance with the results shown in table 9. The estimated coefficients of GDP innovations (DLY) were found to be statistically significant for all three regimes. Moreover, the estimated coefficients of electricty consumption innovations (DLEC) are statistically significant at a conventional level in all regimes. However, the DLEC(-1) in equation 2 in both regimes 1 and 2, and the DLY(-1) in equation 1 in regime 3 are statistically insignificant at conventional levels. We found bi-directional causality in the Nigeria analysis; that is to say, Granger causality appears to exist from DLEC toward GDP for equation 1 in all regimes and Granger causality exists from Y toward DLEC for equation 2 in all regimes. To conclude, some evidence of bi-directional Granger causality was found between electricity consumption and GDP in the first, second, and third regimes in our model of Nigeria. The MSIA(3)VAR(4) model offers important insights for Togo (table 10). The estimated coefficients of economic growth innovations (DLY) and electricty consumption innovations (DLEC) are statistically significant in equations 1 and 2 in the regimes with the exception of DLY-1 for equation 1 and DLEC-1, DLEC-2, and DLEC-4 for equation 2 in regime 1; DLEC-3 for equation 1 and DLY-1 for equation 2 in regime 2; and DLEC-4 for equation 1 and 2 in regime 3. According to the first equation of the first, second, and third regime, which corresponds to the equation for DLY, the EC appears to be the Granger cause of GDP; in the second equation of the first, second, and third regime, the Y appears to be the Granger cause of electricity consumption. Therefore, we found some evidence of bidirectional Granger causality between electricity consumption and GDP in the recession, moderate growth, and high growth regimes for Togo. In table 11 we provide the results of the MSIA(2)VAR(4) model for Zimbabwe. In the case of the first and second regimes, the first equation (denoted as the equation of LY) implies that the EC appears to be the Granger cause of economic growth. It is determined that Granger causality exists from EC to Y in equation 1 in regimes 1 and 2. According to the second equation obtained for the first and the second regimes, that is, the equation for LEC, Y appears to be the Granger cause of energy consumption and the direction of causality is from LY to EC for equation 2. Thus, we found some evidence of bi-directional Granger causality between energy consumption and GDP in the recession and growth periods for the nation of Zimbabwe.

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Traditional Granger Causality Results: For comparison, we modeled the same data sets using standard Granger causality tests for the nine African states. The results are reported in table 12. In the short-run causality analysis, there is evidence to support the growth hypothesis for Algeria. There is a uni-directional relationship from electricity consumption to real GDP, which means that electricity consumption acts as a stimulus to economic growth. Furthermore, there is evidence to support the conservation hypothesis for Morocco, Togo, Zimbabwe, and Tunisia. Bi-directional causality was confirmed for Egypt, Nigeria, South Africa, and Sudan. Conclusion In this study, we used MS-Granger causality testing to examine the causal relationship between electricity consumption and the real GDP. Furthermore, we were able to detect changes in the behavior of the variables through MS-VAR modeling. MS-VAR analysis was used to examine the MS-Granger causality between electricity consumption and economic growth. The dependent variable in the first equation is the innovation of economic growth, i.e., DLY. For all Table 12
RESULTS OF TRADITIONAL GRANGER CAUSALITY TESTS DEC ! DY DY ! DEC F-statistic for SR-GC 247.49 2.9915 85.2648 34.68 0.27365 249.426 25.142 174.95 0.7924 292.5159 72.5018 59.3389 306.8788 16.6168 0.3526 66.145 2.2590 184.594

Country

Algeria Egypt Morocco Sudan Tunisia Nigeria South Africa Togo Zimbabwe

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countries, electricity consumption is the Granger cause of the economic growth. According to the second equation, economic growth appears to be the Granger cause of electricity consumption in the regimes. In summation, some evidence was found of bi-directional Granger causality between electricity consumption and economic growth for the nine countries we analyzed. The results highlight the importance of electricity policy on economic growth, economic development, and welfare. Therefore, an extremely important factor in explaining low levels of economic growth in some African nations is the lack of investments in energy infrastructure and services. Thus, the current low levels of investment in energy infrastructure may be an obstacle that may prevent some African countries from more rapid economic growth. The energy-related problems are crucial policy issues for African states. The current energy policy and the electricity-sector restructuring process should be designed to address this goal. The energy policies aimed at improving the energy infrastructure, within the context of our findings regarding the MS-VAR approach, suggest that increasing the energy supply remains an appropriate option for economic growth.
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16 The transition probability matrix is ergodic and cannot be reduced because the maximum Eigen values of the matrix of transition probabilities related to the MS-VAR models is one and the other two Eigen values are less than one; thus, the transition probability matrix is ergodic and cannot be reduced.