Abstract:
Emerging economies are still faced with need to improve economic growth. One
of the main drivers of growth in literature has been found to be electricity
consumption. However literature fails to explain the relationship between
economic growth and electricity consumption. It is against this background that
the study examines the presence of the long run relationship between economic
growth and electricity consumption in Botswana. The study use annual time series
data for the period 1980 – 2014. Using the Vector Error Correction Model, the
study shows that there is a positive long run relationship between the two
variables. Electricity consumption drives long term growth and it is an important
input in the country’s production function. Human capital and inflation are
important control variables in explaining this long run relationship. Inflationary
pressures on the economy should be kept low and human capital development
should be industry relevant for the country to advance its growth efforts.
Policymakers should continue with and rather develop instruments that encourage
more electricity consumption. In this case electricity subsidies should be given to
firms in areas that are critical for country’s growth prospects, like mining and
agriculture. Policy makers need to make a cost benefit analysis as they design the
subsidies to benefit all the targeted economic agents
