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Preliminary communication

ENERGY CONSUMPTION AND FINANCIAL DEVELOPMENT IN SOUTH AFRICA: AN EMPIRICAL INVESTIGATION

Nicholas M. Odhiambo


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Abstract

This paper examines the dynamic relationship between energy consumption and financial development in South Africa during the period 1980- 2013. In order to address the omission of variable bias, the study has included economic growth as an intermittent variable between financial development and energy consumption. Unlike some previous studies, this study uses three proxies for financial development: i) domestic credit to the private sector as a percentage of GDP as a proxy for financial institutions’ depth; ii) bank credit to bank deposits as a proxy for financial institutions’ stability; and iii) bank lending-deposit spread as a proxy for financial institutions’ efficiency. Using the ARDL bounds testing approach to cointegration and Granger-causality test, the obtained results show that there is a distinct long-run unidirectional causal flow from financial development to energy consumption in South Africa. This applies irrespective of which proxy has been used to measure the level of financial development. The study also finds that there is a long-run unidirectional causality from economic growth to energy consumption, and a unidirectional causality from economic growth to financial development when bank lending-deposit interest rates spread is used as a proxy for financial development. This, therefore, implies that energy consumption in South Africa is largely driven by the growth-led financial development in the long run.

Keywords

Financial Development; Energy Consumption; South Africa; ARDL Bounds Testing Approach

Hrčak ID:

217590

URI

https://hrcak.srce.hr/217590

Publication date:

23.2.2019.

Article data in other languages: croatian

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