Econometric modelling of the link between investment and electricity consumption in Ghana

The study examines the long run effect of investment (proxied by gross fixed capital formation) on electricity consumption for Ghana, for the period 1971-2011, by employing annual time series secondary data from World Bank database (World development indicator). The Augmented Dickey Fuller (ADF) and Kwiatkowski-Philips-Schmidt-Shin (KPSS) tests were used to analyse the stationarity features of the data used in levels and in their first differences. The empirical verification was done using the Autoregressive Distributed Lag model (ARDL). The findings of the study indicate the data used are non-stationary in levels, however, stationary in their first difference. Investment and electricity consumption are cointegrated according to the cointegration test performed. There are both stable short run and long run relationship between investment and electricity consumption. Investment is an appropriate policy tool for electricity consumption management in both short run and long run. Further studies in the area of stationarity with structural breaks, cointegration with structural breaks, causality analysis, and multivariate modelling of investment-electricity consumption link is worth doing since the current study did not consider these issues.