Exploring the Causal Relationship Between Energy Consumption and Economic Growth: Evidence from Eastern Africa

New Energy Exploitation and Application

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Exploring the Causal Relationship Between Energy Consumption and Economic Growth: Evidence from Eastern Africa

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https://doi.org/10.54963/neea.v4i2.1260
Mmbaga, N. F., & Kulindwa, Y. J. (2025). Exploring the Causal Relationship Between Energy Consumption and Economic Growth: Evidence from Eastern Africa. New Energy Exploitation and Application, 4(2), 78–97. https://doi.org/10.54963/neea.v4i2.1260
Volume 4 Issue 2 (2025): In Progress
Copyright (c) 2025 Nanzia F. Mmbaga, Yusuph J. Kulindwa
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Authors

  • Nanzia F. Mmbaga

    Department of Accounting and Finance, Local Government Training Institute, P.O. BOX 1125, Dodoma, Tanzania
  • Yusuph J. Kulindwa

    Department of Economics and Statistics, Moshi Co‑operative University, P.O. BOX 474, Moshi, Tanzania

Received: 25 May 2025; Revised: 5 August 2025; Accepted: 10 August 2025; Published: 29 August 2025

Understanding the relationship between energy consumption and economic growth is crucial for Eastern Africa, a region experiencing rapid economic expansion alongside persistently low energy use. This study intends to determine whether energy consumption drives economic growth or merely results from it in 13 Eastern African countries using annual panel data from 2012–2021. Employing the Dumitrescu‑Hurlin panel causality test and a two‑step System Generalized Method of Moments estimator, the findings reveal unidirectional causality from energy consumption to economic growth, consistent with the growth hypothesis. Specifically, a 1% increase in energy consumption is associated with a 0.1 percentage point increase in GDP (p < 0.01), while a 1% increase in energy prices reduces growth by about 0.073 percentage points (p < 0.05). Further analysis using a Granger non‑causality test indicates bidirectional causality between natural logarithm of energy consumption (LnEnergy) and GDP (p = 0.017), confirming that GDP also influences LnEnergy. Similarly, bidirectional causality between LnPrice and GDP is observed at the 1% significance level, suggesting that economic performance affects energy prices. These findings reveal the complex feedback channels linking energy use, prices, and economic activity, and support the need to expand regional energy infrastructure, stabilize energy prices, and enhance capital investment efficiency within Eastern Africa’s economic dynamics. Overall, the results emphasize adopting a holistic methodological approach that considers interrelated factors rather than relying solely on one‑way causal explanations of the energy–growth relationship.

Keywords:

Economic Growth Energy Consumption Causality SGMM

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