Trade Openness and Energy Consumption in Sub-Saharan African Countries Economic: Evidence from Disaggregated Data

Abstract

In this paper, the causal relationship between trade openness and energy consumption in sub-Saharan African (SSA) countries during the period 1980-2016 is examined. Trade openness is disaggregated into three components, namely total export plus import of goods and services as a % of GDP (Open 1), total export of goods and services as a % of GDP (Open 2) and total import of goods and services as a % of GDP (Open 3). In order to account for the omission-of-variable bias, economic growth and urbanisation are incorporated as intermittent variables between the various components of trade openness and energy consumption, thereby creating a multivariate system of equations. For robustness check, the study uses first- and second-generation unit root tests to examine the order of integration. In addition, the study uses three panel cointegration tests, namely that of Westerlund (2005), Pedroni (2004) and Kao (1999). Using the panel Granger-causality test, the study found that there is a unidirectional causal flow from trade openness to energy consumption, but only when the total exports of goods and services as a % of GDP (Open 2) is used as a proxy for trade openness. When Open 1 and Open 3 are used as proxies, no causality is found to exist between trade openness and energy consumption in either direction, irrespective of whether the causality test is conducted in the short-run or in the long run. This finding, though contrary to some of the previous studies, is not surprising given the disparity in trade balance and energy challenges facing many SSA countries.