Macroeconomic Determinants of Energy Consumption in Eastern Africa: An Empirical Analysis Using Panel-ARDL Models

Abstract

Energy security is crucial for Eastern Africa's economic prosperity and the improvement of living standards. Exploring the drivers of energy consumption is essential for crafting effective energy policy actions that are aligned with focused developmental goals and leveraging available energy resources. Using the Panel Autoregressive Distributed Lag model, this study examines the short and long-run macroeconomic drivers of energy consumption in Eastern Africa from the period 2000-2021. Results reveal that inflation (i.e. consumer price index) exhibits a short-run negative impact on energy consumption. However, in long term, inflation has a positive relationship with energy consumption. The study also show that population size has a negative short-run effect on energy consumption. However, in long term an increase in population size drives energy consumption in EAC. Moreover, trade openness influences short-run consumption and foreign direct investment impacts long-run consumption. The mechanisms influencing these macroeconomics determinants of energy consumption are discussed. We suggest addressing population trends, inflation crisis, and trade-induced fluctuations in the short run, while fostering an environment conducive to attracting foreign direct investment and controlling inflation in the long run. Achieving regional energy security and economic resilience necessitates a balanced approach that considers both internal and external factors across different timeframes.