The Relationship B/N Energy Consumption and Economic Growth: the Case of Ethiopia

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The relationship between energy consumption and economic growth: In case of Ethiopia.

External economic analysis and international relations directorate

Awet Tekie May 2010

Abstracts This paper investigates the relationship between energy consumption and the Ethiopian economy from the period of 1970 to 2009. The energy sources used to test for this relationship were crude oil and electricity. By applying the co-integration technique, the results derived infer that there exists a positive relation ship between current period energy consumption and economic growth. The implication of the study is that increased energy consumption is a strong determinant of economic growth having an implicit effect in lagged periods and both an implicit and explicit effect on the present period of Ethiopia. Thus, it is pertinent that this sector should be given more relevance even by exploiting the opportunities laden in the sector to increase economic growth. Key words: energy consumption, economic performance, Ethiopia.

(All opinions expressed here are those of the author’s and author’s only).

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TABEL OF CONTENT 1. Introduction………………………………………………………………………4 2. Objective of the study……………………………………………………………5 3. Methodology……………………………………………………………………..5 4. Stylized literature…………………………………………………………………6 4.1. Theoretical framework………………………………………………………10 5. Model specification……………………………………………………………….13 6.1 data analysis and presentation…………………………………………………...15 6.1. Analysis and results…………………………………………………………..16 6.2. Test of co integration………………………………………………………..16 6.3. Coefficient of determination…………………………………………………17 6.4. F-statistics……………………………………………………………………17 6.5. Durban Watson (DW)………………………………………………………..17 6.6. Significant of the variables………………………………………………….17 6.7. Error correction term………………………………………………………..18 6.8. Results……………………………………………………………………….18 7. Conclusion………………………………………………………………………..18 8. Recommendation………………………………………………………………….19

Reference…………………………………………………………………………….21 Appendix…………………………………………………………………………….24 Tables. Table one…………………………………………………………………….15 Table two…………………………………………………………………….15 Table three…………………………………………………………………..16

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1. Introduction World economies are heavily reliant on energy and Ethiopia is not exception. As Alam (2006) put it ‘’ the indispensable force driving all economic activities’’ in other words the greater the energy consumption the more the economic activity in the nation and as a result a greater economy emerges. Today Ethiopia is seen as one of the greatest developing nation in Africa with high endowed natural resources including potential energy resources especially electricity. However increasing access to energy in Ethiopia has proved to be not only a continues challenging but also a pressuring issues with the international community. Economic growth is a pre requisite for a nation to move from a third world countries to a developed country. For a developing countries like Ethiopia, the greater the economic growth, the better its chance to be come more developed. With adequate utilization of energy potentials to meet the demand, the nation would experience high levels of economic growth. Energy efficiency does not just connote a reduction in utility cost but it involves increasing revenue through greater productivity. Ovieniuwo (2006) agrees the ‘’ energy efficiency is the indispensable component of any effort to improve productivity.’’ And of course contribute to economic wealth. Major of Ethiopian are dependent on fossil fuel and fuel wood (fire wood). The over dependency of fossil fuel and fire wood (used mainly by poor rural commuters) have not yield enough capacity to meet increasing demands.

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2. Objectives of the study: The objectives of this paper is 1. to establish a relationship between energy consumption and the Ethiopian economy 2. To discuss the main sources of energy in Ethiopia and how they contribute to economic growth. 3. To make policy...
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