Impact of Petroleum Consumption on Economic Growth in Kenya

Authors

  • Eunice Wanjiku Wambui University of Nairobi
  • Dr. Omondi S. Gor University of Nairobi
  • Dr. P. O. Machyo University of Nairobi

DOI:

https://doi.org/10.47941/ijecop.22
Abstract views: 345
PDF downloads: 121

Keywords:

petroleum consumption, economic growth, short and long run relationship, Granger causality

Abstract

Purpose: The main objective of the study was to find the relationship between petroleum consumption and economic growth in Kenya.

Methodology: A modified Cobb-Douglas production function was used to analyse the relationship between energy consumption and economic growth. In this study, secondary annual time series data covering the period 1980-2009 was used. All variables were expressed in natural logarithms. The data on GDP, population, labor force and private capital and petroleum consumption were collected from the various issues of the annual Kenya Economic surveys and statistical abstracts (1980-2008). Relevant data on petroleum consumption was also obtained from the ministry of Energy.

Results: The estimation results of the long-run relationship revealed that the relationship between petroleum consumption and GDP, and private capital and GDP was positive and statistically significant.  Estimation of Error-correction model showed that in short run there was a positive and statistically insignificant relationship between GDP and lagged petroleum consumption. Finally, Granger causality tests imply a unidirectional Granger causality running from petroleum consumption to GDP.

Unique contribution to theory, practice and policy: Given the long-term positive effects on the economy, the study recommended that an energy growth policy in the petroleum consumption should be adopted in such a way that it stimulates growth in the economy. To encourage petroleum consumption, both supply side and demand side dynamics should be addressed. For instance, the domestic price of petroleum should be reduced to a level that stimulates both household and industry demand. Structural problems such as the lack of proper storage facility that could stabilize prices during petroleum stocks were indeed necessary

Downloads

Download data is not yet available.

Author Biographies

Eunice Wanjiku Wambui, University of Nairobi

Postgraduate student

Dr. Omondi S. Gor, University of Nairobi

Lecturer

Dr. P. O. Machyo, University of Nairobi

Lecturer

References

Akarca, A. T., & Long, T. V. (1980). The relationship between energy and GNP: A reexamination, Journal of Energy and Development, 26 (1), 326-331.

Asafu-Adjaye, J. (2000). The relationship between energy consumption, energy prices and economic growth: Time series evidence from Asian developing countries, Energy Economics, 22 (6), 615-625.

Celik, S., & Ozerkek, Y. (2009). Panel co integration analysis of consumer confidence and personal consumption in the European Union, Journal of Business Economics and Management, 10(2), 161-168.

Cheng, S. B., & Lai, T. W. (1997). An investigation of co-integration and causality between energy consumption and economic activity in Taiwan, Energy Economics, 19(4), 435-444.

Glasure, Y. U. (2002). Energy and national income in Korea; Further evidence on the role of omitted variables. Energy Economics, 24(4)355-65.

Jumbe, C. B. L. (2004). Co-integration and causality between electricity consumption and GDP: Empirical evidence from Malawi. Energy economics, 26(1), 61-68.

Konya, L. (2004). Export-led growth, growth-driven export, both or none? Granger causality analysis on OECD countries. Granger Causality Analysis on OECD Countries (August 17, 2008). Applied Econometrics and International Development, 4(1).

Kraft, J., & Kraft, A. (1978). The relationship between energy and GNP. Journal of Energy and Development, 3(2), 401-403.

Masih, A. M., & Masih, R. (1997). On the temporal causal relationship between energy consumption, real income, and prices: some new evidence from Asian-energy dependent NICs based on a multivariate cointegration/vector error-correction approach. Journal of policy modeling, 19(4), 417-440.

Mehra, M. (2007). Energy-GDP Relationship for oil-exporting countries: Iran, Kuwait, and Saudi Arabia. OPEC Review, 31(1), 1-16.

Nachane, D. M., Nadkarni, R. M., & Karnik, A. V. (1988). Co-integration and causality testing of the energy-GDP relationship: A cross-country study, Applied Economics, 20(11), 1511-1531.

Omotor, D. G. (2008). Causality between energy consumption and economic growth in Nigeria, Pakistan Journal of Social Sciences, 5(8): 827-835

Stern, D. I. (1993). Energy and economic growth in the USA: A multivariate approach. Energy Economics, 15(2), 137-150.

Yu, E. S. H., & Choi, J. Y. (1985). The causal relationship between energy and GNP: An international comparison, Journal of Energy and Development, 10, 249-272.

Yu, E. S. H., & Hwang, B. (1984). The relationship between energy and GNP: Further results, Energy Economics, 6, 186-190.

Yu, E. S. H., & Jin J. C. (1992). Co integration tests of energy consumption, income, and employment, Resources and Energy, 14: 259-266.

Zou, G., & Chau, K. W. (2005). Short run and long run effects between oil consumption and economic growth in China, Energy Policy, Article in Press.

Downloads

Published

2021-04-13

How to Cite

Wambui, E. W., Gor, D. O. S., & Machyo, D. P. O. (2021). Impact of Petroleum Consumption on Economic Growth in Kenya. International Journal of Economic Policy, 1(1), 1–13. https://doi.org/10.47941/ijecop.22

Issue

Section

Articles