Energy Consumption, Carbon Dioxide Emissions and Economic Growth in Ethiopia: a VAR Analysis Approach

Abstract

This study has attempted to investigate the relationship between energy consumption, CO2 emissions, and economic growth in Ethiopia in A VAR analysis approach. It ,uses time series data from 1970171 to 2010111. The finding indicates variables of interests are integrated of the same order 1(1). Co-integration test approves 'existence of one co-integrating equation. The Validity of the model was approved by diagnostic tests. The long run relationship and causality result shows energy consumption causes Economic Growth in Ethiopia. The functional relationship supports growth hypothesis. In the long run model there is no significant relation between C02 emissions and economic growth as well as in causality result. The result shows Economic Growth in Ethiopia can be achieved without degrading the quality of the environment coming from C02emissions. Based on the outcome shocks to energy consumption have a negative impact on economic growth. To secure the sustenance of C02 emissions free economic growth in Ethiopia, cost effective, carbon free, and efficient utilization of renewable energy consumption based on the country comparative advantage that consider alternative use of resources are advisable like Hydro and Geothermal. Key words: Energy consumption, CO2 Emission, Economic Growth, VAR