The asymmetric effect of financial development on energy consumption in sub-Saharan Africa

Abstract

Sub-Saharan Africa (SSA) ranks lowest globally in respect of energy access rates. The resulting high energy poverty impedes sustainable economic growth and aggravates the overall poverty which is prevalent in SSA countries. A better understanding of the relationship between financial development and energy consumption can contribute to enhancing sustainable development in SSA. The existing literature presents conflicting evidence regarding this relationship. Our objective is to investigate the symmetric and asymmetric relationships between financial development and energy consumption in SSA, using annual data from 1990 to 2016. The Autoregressive Distributed Lag (ARDL) panel estimator was employed to test for the linear relationship and symmetric effects of the long-run and short-run coefficients. The asymmetry was determined by decomposing financial development into positive and negative components, employing the non-linear ARDL (NARDL) method. The results reveal that a positive financial development shock is positively linked with energy consumption in the long-run implying that further financial development intensifies energy consumption. Results of the negative shock in financial development is positively linked with energy consumption in the long-run implying that the reduction in financial development could decrease energy consumption.

Keywords

• Asymmetry
• energy consumption
• energy poverty
• financial development
• non-linear autoregressive distributed lag
• sub-Saharan Africa