Forest Covers, Energy Use, and Economic Growth Nexus in the Tropics: A Case of Ethiopia

Abstract

Forest is the major source of energy and income in the tropics, while economic growth affects the forest cover and energy use pattern. Although forest cover, energy use, and economic growth are the pillars of Ethiopia's climate-resilient green economy strategy, there is a limitation in empirical studies that substantiate the relationship. This paper uses Vector Auto-Regression and Auto-Regressive Distributed Lag models for the time-series data from 1990 to 2014. Besides the unit root, co-integration, and lag length tests; co-linearity, Heteroskedasticity, CUSUM, and normality were also checked. The main finding shows a direct causal relationship between energy use and forest cover, forest cover and economic growth, and energy use and economic growth. Energy use and economic growth explain 16% and 15% of the variation in forest cover, respectively. Similarly, forest cover and energy use explain 37% and 1.4% of the variation in economic growth. Moreover, forest cover and economic growth explain 29% and 23% of the variation in energy use. Though the contribution of forest cover is significant to improving energy use and economic growth, decision makers should give due emphasis to the finding.

Keywords

• Auto-Regressive Distributed Lag
• Co-integration
• response to shock
• Variance decomposition
• Vector Auto-Regression