Revisiting the Causal Relationship between Energy Consumption and Economic Growth in South Africa: Evidence from a Bootstrap Rolling Window Approach

The paper examines the relationship between energy consumption and economic growth for South Africa for the period 1971-2009. Most studies examining this relationship do assume that it remains constant through the years; however the reality might be different since many factors can affect the existence and direction of this causality. This paper looks at a bivariate VAR and takes into consideration any instability in the model using bootstrap rolling Granger non-causality tests. Full-sample Granger causality tests report no causal relationship between the two variables. Moreover, parameter stability tests detect instability in the model which means that the full-sample Granger causality results are not valid. We therefore allow for the possibility of structural breaks by using bootstrap rolling-window Granger causality tests. Although our results are not very strong we do however find a sub-period from 1987-1989 where energy consumption has a causal effect on GDP growth. Except for this brief sub-period, the results show no linkage between economic growth and energy consumption.