Relationship Between Access To Electricity and Economic Growth

FACULTY OF ECONOMICS AND MANAGEMENT SCIENCE
THESIS
THE RELATIONSHIP BETWEEN ACCESS TO ELECTRICITY AND
ECONOMIC GROWTH IN SOMALIA
CANDIDATE
LIIBAAN CABDULAAHI CALI
ID: B4EC245
A THESIS SUBMITTED IN PARTIAL FULFILLMENT FOR THE
REQUIREMENTS OF THE AWARD OF BACHELOR OF ECONOMICS
AND MANAGEMENT SCIENCE OF SOMALI NATIONAL UNIVERSITY
FEBRUARY, 2022
DECLARATION
I declare here that this is my original thesis for bachelor degree of economics in Somali National
University. This is my real original work. It is not being presented for a degree in any other
university.
Name of the candidate: LIIBAAN CABDULAAHI CALI
ID: B4EC245
Signature: _______________________
Date: _____/_____/_________
ii
SUPERVISOR’S APROVAL
I hereby declare that I have read this senior thesis and in my opinion, this senior thesis is sufficient in
terms of scope and quality for the award of Bachelor Degree of Economics and it has been conducted
under my direct supervision.
Supervisor Name: ABDINASIR KATIB
Signature: _____________________________
Date: ___ /_____ /________
iii
APPROVAL PAGE
This Proposal / Thesis have been written with my guidance and supervision and thus recommend
it for submission for further consideration.
Dean of the Faculty of Economics
Prof: Hassan Osman Ga’al
Name: ___________________________________
Title: _____________________________________
Signature ___________________________ Date: _____/______/________________
iv
Dedication
This study is dedicated to my teacher AUN professor Abdurrahman Hussein Amir, who taught
us how to write research proposal.
v
ACKNOWGMENT
First of all, I think Allah the most merciful and the most compassionate, who enabled me to
prepare this proposal, and secondly I would to thank my supervisor, Professor Abdinasir Katib,
who had guided and helped me humbly to complete this research projects. Thirdly I would like
to thank my parents, sisters and brothers who also helped me. Finally I would like to thank my
university lectures, professors and assistant lecturers who also helped me.
vi
ABSTRACT
The study investigated the empirical relationship between electricity access and economic
growth in Somalia, from 2004 to 2019, the study employed autoregressive distributed lag model
(ARDL), the study used Augmented Dick-fuller test to check the presence for unit root and
found that AGDPGR, AEUP are stationary at level, while AEP and AERP are stationary at first
difference. We also used ARDL bound test to check the existence of co-integration and found
there is co-integration, there is no long-run relationship among study variables, short-run results
revealed that t AEP has positive and significant impact on economic growth, while AEUP has
negative and significant impact on economic growth. Finally there is no relationship between
AERP and economic growth. on the basis of empirical results found The Somalia federal
government has to improve social-economic development of the people by increasing energy
accessibility such as electricity supply and access through on grid and off –grid systems. This
will improve the people’s socioeconomic activities as they will be able to carry out productive
activities such as irrigation, processing, and manufacturing certain agriculture output.
Keywords AEP, ACCEES TO ELECTRICITY, ARDL, AND ECONOMIC GROWTH
vii
TABLE OF CONTENTS
DECLARATION........................................................................................................................... ii
SUPERVISOR’S APROVAL .................................................................................................. iii
APPROVAL PAGE.................................................................................................................. iv
Dedication ...................................................................................................................................... v
ACKNOWGMENT...................................................................................................................... vi
ABSTRACT ................................................................................................................................. vii
CHAPTER ONE ........................................................................................................................... 1
INTRODUCTION......................................................................................................................... 1
1.0 INTRODUCTION................................................................................................................... 1
1.1 BACKGROUND OF THE STUDY ................................................................................... 1
1.2 PROBLEM STATEMENT ................................................................................................ 3
1.3 General objective ................................................................................................................. 4
1.4 specific objectives ................................................................................................................ 4
1.4 Research questions .............................................................................................................. 4
1.5 Hypothesis ............................................................................................................................ 5
1.6 Justification of the study ..................................................................................................... 5
1.8 Scope of the study ................................................................................................................ 5
1.8.1 Time scope......................................................................................................................... 6
1.8.2 Geographical scope .......................................................................................................... 6
viii
1.8.3 Content scope ................................................................................................................. 6
1.9 definitions of key terms ..................................................................................................... 6
1.10 Conceptual frame work ................................................................................................... 7
CHAPTER TWO .......................................................................................................................... 8
LITERATURE REVIEW ............................................................................................................ 8
2.0 INTRODUCTION ............................................................................................................... 8
2.1 .1 Theoretical Literature Review ....................................................................................... 8
2.1.2 Empirical literature reviews............................................................................................ 9
2.2 Electricity access and economic growth .......................................................................... 13
2.3 summary of the Gap Knowledge chapter ....................................................................... 18
CHAPTER THREE .................................................................................................................... 19
METHODOLOGY ..................................................................................................................... 19
3.0 INTRODUCTION ............................................................................................................. 19
3.1 Research design ................................................................................................................. 19
3.2 Population of the study ..................................................................................................... 19
3.3 Data Collection Instrument .............................................................................................. 19
3.4 Data collection procedure ................................................................................................. 20
3.5 Data analysis procedure.................................................................................................... 20
3.5.1Correlation Analysis ....................................................................................................... 20
3.5.2 E-views............................................................................................................................. 20
ix
3.5.3 Unit root test ................................................................................................................... 21
3.5.4 ARDL Model Specification ............................................................................................ 21
3.5.5 Error correction model .................................................................................................. 22
3.5.6 T-test Statistic ................................................................................................................. 22
3.5.7F-test Statistic .................................................................................................................. 23
3.5.8 Diagnostic test ................................................................................................................. 23
CHAPTER FOUR ....................................................................................................................... 28
FINDINGS AND DISCUSSION ................................................................................................ 28
4.0 Introduction ....................................................................................................................... 28
4.1 Unit root test ...................................................................................................................... 28
4.2 Co-integration test ............................................................................................................. 31
4.3 Pair wise Granger Causality Tests .................................................................................. 32
Table 4.4: Long Run Estimation Result ................................................................................ 36
Table 4.5: short Run Results .................................................................................................. 36
4.5.1 T-Statistic Test ................................................................................................................ 39
4.5.3 Model Specification Test .............................................................................................. 41
4.5.4 Normality Test .............................................................................................................. 42
4.5.5 Multicollinearity test..................................................................................................... 43
4.5.6 Heteroscedasticity......................................................................................................... 44
4.5.7 AUtocorrelation ............................................................................................................ 45
x
CHAPTER FIVE ........................................................................................................................ 46
CONCLUSION AND RECOMMENDATIONS ...................................................................... 46
5.0 Introduction ....................................................................................................................... 46
5.1 Conclusion .......................................................................................................................... 46
5.2 Recommendation of the study .......................................................................................... 46
References ................................................................................................................................ 48
APPENDIX A: ACTIVITY REPORT ...................................................................................... 50
APPENDIX (B :) Budget (estimated) ........................................................................................ 51
xi
LIST OF TABLES
Table 4.1: RESULTS OF ADF unit root test ----------------------------------------------------- 29
Table 4.2: F-statistics for testing the existence of Long-run Co-integration------------------ 33
Table 4.3.1 Pair wise Granger Causality Tests ------------------------------------------------ 35
Table 4.3.2 Pair wise Granger Causality Test ------------------------------------------------- 36
Table 4.3.3 Pair wise Granger Causality Tests---------------------------------------------------- 37
Table 4.4: Long Run Estimation Result ---------------------------------------------------------- 39
Table 4.5: short Run Results------------------------------------------------------------------------- 40
Table 4.5.1Ramsey Reset test ----------------------------------------------------------------------- 46
Table 4.5.2: Jarque-Bera Normality Test --------------------------------------------------------- 47
Table 4.5.3: Variance Inflation Factor (VIF) Analysis------------------------------------------- 48
Table 4.5.4: Heteroskedasticity Test: Breusch-Pagan-Godfrey---------------------------------- 50
Table 4.5.5: Breusch-Godfrey Serial Correlation LM Test-------------------------------------- 51
xii
List of abbreviations
ARDL Auto regressive Distributed Lag
ADF Augmented Dickey-Fuller
AGDPGR Annual Gross Domestic Product Growth Rate
AEP Access to electricity (% of population)
AERP Access to electricity (% of population)
AEUB Access to electricity (% of population)
xiii
CHAPTER ONE
INTRODUCTION
1.0 INTRODUCTION
This chapter introduces different sections including background of the study, problem statement,
general objective, specific objectives, research questions, hypothesis, justification, scope of the
study, definitions of key terms, and conceptual framework.
1.1 BACKGROUND OF THE STUDY
In 2016 the numbers of people without access to electricity were 1.1 billion compared to 2000
which they were 1.7 billion, this decline in the number of the people who were without
electricity is mainly via the expansion of the grid and with fossil fuels (45% coal, 19% natural
gas and 7% oil). Progress has accelerated – more than 100 million people gained electricity
access per year since 2012, compared with 62 million people per year between 2000 and 2012,
and renewable sources of electricity provided 34% of this increased access (Association
internationale pour l'évaluation du rendement scolaire, & International Energy Agency, 2017,
p.39).
The majority of those without access to electricity are in developing countries in Asia and in sub-
Saharan Africa. Association internationale pour l'évaluation du rendement scolaire, &
International Energy Agency (2017, p.39).Since 2000, half a billion people have gained access to
electricity in India – one of the largest electrification success stories in history. Other developing
countries in Asia also registered significant progress, and the electrification rate is now 89%,
compared with 67% in 2000. In sub-Saharan Africa, there are signs of promise as accelerating
electrification efforts outpaced population growth for the first time in 2014, however, progress
remains uneven and the electrification rate is currently only 43% (Association internationale
pour l'évaluation du rendement scolaire, & International Energy Agency, 2017, p.39).
According to India, the number of the people who were without electricity access were
estimated about 239 million people in 2016 which was equivalent to almost a quarter of the
number of people who were without access worldwide. Notably, India has made significant
strides in improving access, with electricity now reaching 82% of the population, up from 43%
in 2000. The pace is accelerating: the number of people gaining access has risen from 28 million
per year between 2000 and 2012 to 41 million people per year in 2016. If this pace is maintained,
India will achieve universal access in the early 2020s (Association internationale pour
l'évaluation du rendement scolaire, & International Energy Agency, 2017, p.43).
Kenya’s electricity access was 75% in 2018, which was the highest among the East African
countries. This was because of many electrification projects that have been undertaken by Kenya
Power, such as the last mile connectivity project and Global Partnership on Output-Based Aid
(GPOBA), which targeted the urban informal sector and low-income areas in the rural areas.
There has been a steady increase in electricity access in Kenya from 32% in 2013 to around 75%
in 2018, due to increased investment in distribution network and in renewable energy production
(Onuonga, 2020, p. 3).
According to the World Bank data, the number of people without access to electricity in Somalia
increased from about 8.9 million in 2004 to 9.8 million in 2016, this increase was due to
population growth (total estimated population of Somalia was 10.1 million in 2004 compared to
2016 in which total estimated population was 14.1 million), More than 4.4 million people gained
electricity since 2004.
2
In Somalia the majority of those without access to electricity are in rural areas, the number of
rural population without access to electricity were estimated 7.2 million in 2016 compared to
2004 which was 6.4 million people, this increase of the number people without access to
electricity was due to population growth and technology change , since 2010 more than 570
thousand people in rural areas have gained electricity access, while the number of urban people
without access to electricity were estimated 2.4 million in 2007compared to 2010 that was 2.7
million, since 2012 more than 2.2 million people have gained electricity access, although lack
electricity access in significant problem in Somalia, however, there is no study related to
problem under investigation. Therefore, this study is intended to investigate the relationship
between electricity access and economic growth in Somalia using ARDL model.
1.2 PROBLEM STATEMENT
According to Sustainable Development Goal g(7) “which was to ensure access to affordable,
reliable, sustainable and modern energy for all” all Somalia population could have access to
electricity according to universal access by 2030, but in 2019 36% of Somalia population had
access to electricity which is very different as estimated, there is big gap between SDG7.1 target
which was 100% electricity access to population by 2030 and current electricity access in
Somalia which is below 40%( about 60% of population are without access to electricity), and
economic growth (annual GDP growth in Somalia was below 3% since 2016) was not
performing well, which brings us to the question of whether electricity access have relationship
with economic growth in Somalia.
Empirically several studies have been conducted on electricity access and economic growth,
some studies have supported that electricity access have positive and significant impact on
economic growth including study conducted by Rehman et al(2018) which was An empirical
3
analysis of rural and population’s access to electricity: evidence from Pakistan and other study
conducted by Onuonga (2020) investigating economic growth, electricity access , and
remittances in Kenya, while other study found negative significant impact on economic growth
according (ogbebor, 2021) It is in line of the above authors ‘ambiguity in results that this study
intended to in investigate the relationship between electricity access and economic growth in
Somalia.
1.3 General objective
The purpose of the study was to investigate the relationship between electricity access and
economic growths in Somalia from 2004 to 2019 using autoregressive distributed lag model.
1.4 specific objectives
The studies have the following sub objectives:
I. The relationship between electricity access to population and annual growth rate of gross
domestic product in Somalia.
II. The relationship between electricity access to urban population and annual growth rate of
gross domestic product in Somalia.
III. The relationship between electricity access to rural population and annual growth rate of
gross domestic product in Somalia.
1.4 Research questions
I. What is the relationship between electricity access to population and annual growth rate
of gross domestic product in Somalia?
II. What is the relationship between electricity access to urban population and annual growth
rate of gross domestic product in Somalia?
4
III. What is relationship between electricity access to rural population and annual growth rate
of gross domestic product in Somalia?
1.5 Hypothesis
H0: there is no significant impact of electricity access to population on annual gdp growth.
H1: there is significant impact of electricity access to populationon annual gdp growth.
H0: there is no significant impact of electricity access to urban populationon annual gdp growth.
H1: there is significant impact of electricity access to urban population on annual gdp growth.
H0: there is no significant impact of electricity access to rural population on annual gdp growth.
H1: there is significant impact of electricity access to rural population on annual gdp growth.
1.6 Justification of the study
As this study was carried out to find the relationship between electricity access and economic
growth in Somalia, it will help the legal bodies and government authorities in decision making
towards energy accessibility for all Somalia people; it will also be helpful for future researchers
because it will act as a guideline for them to follow in the subsequent studies related to the
problem under investigation and also a source of literature for future studies.
The study will also be benefitted by the local community because it creates a conscious
awareness on the existence of the problem and the urgency of the need to address a particular
problem.
1.8 Scope of the study
This study contains the following three scopes which are:-
5
1.8.1 Time scope
This study was conducted between August 2021 to 15 February 2022, this was the time period
that university board of research has allocated for the students to conduct their studies.
1.8.2 Geographical scope
This study was conducted in Somalia.
1.8.3 Content scope
This study focused on the relationship between electricity access and economic growth; this
study specifically focused on relationship between electricity access to population, electricity
access to rural population, electricity access to urban population and annual gdp growth.
1.9 definitions of key terms
HALLER (2012, p.1 ) defines economic growth as “Is an increase of the national income per
capita, and it involves the analysis, especially in quantitative terms, of this process, with a focus
on the functional relations between the endogenous variables; in a wider sense, it involves the
increase of the GDP, GNP and NI, therefore of the national wealth”.
N zue, F. F., & Iqbal, B. (2021, p.1) states Access to electricity as “It refers to the percentage of
people in a given area that have relatively simple, stable access to electricity”.
Throughout this dissertation, the term economic growth will be used to refer annual increase of
material production expressed in value, the rate of growth of Gdp or national income (Ivic, 2015,
p. 1).
6
1.10 Conceptual frame work
IV DV
EV
Electricity access to
urban population
Income
Annual Gdp
Electricity access to rural
Trade
population growth rate
Investment
Electricity access to
population
7
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
This chapter consists of three parts. Part one displays theoretical litreture review and empirical
findings of the relation between electricity access and economic growth, while Part two focuses
on the relationship between electricity access and economic growth and the last parts
summarizes the gap knowledge chapter. Several studies have been conducted on the
relationship between electricity access and economic growth. To reveal a short-run relationship
between the two variables.
2.1 .1 Theoretical Literature Review
Theories of economic growth propose many ideas about the variables that explain a country's
economic growth. According to Adam Smith's Classical Theory, economic growth is fueled by
labor productivity, trade that allows for specialization, and the function of markets in
determining supply and demand. The Solow and Swan's neoclassical model emphasizes that a
country's economic growth is determined by its population. Savings as a percentage of GDP and
technical advancements that boost productivity Harrod–Domar is a partnership between Harrod
and Domar. The model lays out the requirements for long-term economic growth. They contend
that economic growth is reliant on government spending. the country's savings Savings make it
easier to invest, and investment boosts growth. The endogenous system The Romar and Lucas
growth model highlights the importance of human capital in determining economic growth.
Employees with greater knowledge, education, and training impact positively on technological
progress Technological progress increases productivity of both capital and labor and hence the
economic growth of the country (2020, Onuonga, p.2).
8
From this discussion on the theories of economic growth, energy do not enter directly into the
growth models. However, energy powers the production process and enhances education, health,
technology, and the distribution of goods and services. Energy, especially, clean energy is
expected to positively impact on economic growth.
2.1.2 Empirical literature reviews
According to study conducted by Onuonga in Kenya which about determining the long-
run association between gross domestic products, access to electricity, and remittances within the
multivariate framework in Kenya using the data for the period 1987-2018. The autoregressive
distributed lag (ARDL) bounds test was used to investigate the long-run relationship. Causality
between variables was investigated by use of the Granger causality method. The bounds test
indicated that there is co-integration when gross domestic product, electricity access, and
remittances are dependent variables. The long-run estimation of coefficients suggests that
electricity access and remittances have significant positive impact on economic growth in Kenya
in the sample period. Causality analysis provides evidence that there is unidirectional Granger
causality running from gross domestic product to electricity access and not vice versa and from
gross domestic product to remittances and not vice versa. There was no causality between
remittances and electricity access. The policy implications of the paper suggest that the
government and other companies concerned should enhance electricity access and encourage
inflows of remittances as these contribute positively to economic growth in Kenya (Onuonga,
2020, p. 1).
This study investigated the electricity access to rural and urban populations and its impact on the
economic growth in Pakistan over a period from 1991 to 2014. This time series data were
collected from an economic survey of Pakistan and World Development Indicators (WDI). An
9
autoregressive distributed lag (ARDL) bounds testing approach was applied to investigate the
relationship between study variables, and a co-integration test was used to investigate the
dynamic causality relationships between electricity access to rural and urban populations and
economic growth,
By using this testing approach, this study filled the literature gap regarding the access of rural
and urban population to electricity in Pakistan. The tests shed light on the long-run relationship
among the variables, whereas the results revealed that the access of both rural and urban
populations to electricity had a positive and significant effect on economic growth According to
these findings, we can conclude that Pakistan should pay further attention to increasing its
electricity production from different sources, including not only hydroelectric, solar, wind, oil,
gas, and biomass but also fewer and fewer nuclear sources, in order to fulfill the country’s
demands on its way to a future of sustainable development.(Rehman et al., 2018, p.1).
A study carried on by Mhaka and his colleagues investigated the impact of Rural and Urban
Electricity Access on Economic Growth in Zimbabwe, although, Lack of access to reliable
electricity to both rural and urban Zimbabweans is negatively affecting the quality of people’s
life. The country has been experiencing extended hours of load shedding which result in the
population having more hours without electricity per day than with electricity. Access to
electricity complimented by droughts, natural disasters has impacted on production activities for
the people hence causing poverty to many. The study used time series data for the period 1992-
2018. The Dynamic Ordinary Least Squares (DOLS) was used as the main model of assess
electricity access on economic growth. The results revealed that electricity access to urban
population and electricity access to population (EAP) have positive significant impact on
economic growth. However, electricity access to rural population was found to be statistically
10
insignificant reflecting that electricity is not always available when it is needed in the rural areas.
The study recommends that there is need to improve electricity access for both urban and rural
population through on-grid and off-grid systems and expanded electricity generation to meet
demand. This will improve socio-economic activities people would be able to carry out
productive activities such as irrigation, processing and manufacturing or value addition of certain
agriculture out (Mhaka, S. et al., 2020, p.1).
Rehman, & deyuan (2018, p. 1) investigated and explored the link between economic growth,
electricity access, energy use, and population growth in Pakistan for the period 1990–2016. An
autoregressive distributed lag (ARDL) bounds testing approach to co-integration was applied to
investigate the causality link between the study variables. These tests shed light on the long-run
connection among the variables; further, the results revealed that the electricity access to the total
population, electricity access to the urban population, energy usage, population growth, and
urban population growth had a significant impact on economic growth, while the electricity
access to the rural population and rural population growth had a negative impact on the
economic growth in Pakistan. According to these findings, this study recommends that the
government of Pakistan pay further attention to increasing its electricity production from
different sources, including hydroelectric, solar, oil, and gas, and nuclear in order to fulfill the
country’s demands.
According to the World Bank, there are 600 million people who do not have access to stable
electricity supply in sub-Saharan Africa. Stable electricity is important to increase the
productivity of artisans, and other micro, small and medium enterprises, improve yields and
storage capacities of producers and farmers which results in economic growth, and generally
improve the well-being of the people in the society. This study attempts to find out the type of
11
relationship which exist between access to electricity and economic growth in sub-Saharan
Africa using panel data from thirty (30) countries covering the period 1997 to 2017. As a
preliminary check, panel unit roots test was conducted to confirm the stability of the series so as
to avoid spurious results. The results confirm that all the variables are stationary at order I(1)
while panel co-integration tests suggest the existence of long-run relationships among the
variables. The regression results of the random effects model and the Fully Modified Ordinary
Least Squares (FMOLS) indicate a negative and significant relationship between access to
electricity and economic growth while the other control variables used in the study except the
GFCF/GDP variable were significant and correctly signed in accordance with a priori
expectation. It is recommended that the governments of sub-Saharan African countries should
formulate and implement appropriate policies that would increase electricity generation in their
countries in order to propel economic growth and improve the standard of living of their citizens
while international development agencies and the World Bank should direct their interventions to
the provision of stable electricity supply in the sub-region. (OGBEBORo, 2021, p.1).
The paper aims to determine the relationship between access to electricity and economic
performance. The study covered 14 countries of the ECOWAS region and used data ranging
from 1990 to 2016. The Pool Mean Group estimator, in an ARDL setting, was used to estimate
the short and long run dynamics of access to electricity on growth. The analysis was done
considering the currency, language and geographical divide. Results show cointegration among
variables. In the long run, access to electricity positively impacts economic growth but not in the
short run. There is a long run causality going from access to electricity to economic performance.
Access to electricity has no significant impact on economic growth when the sample is
disaggregated to capture the currency, language and geographical divide. From the findings, we
12
recommend that the authorities of the region endeavor to increase investment in energy
infrastructure to substantially improve access rate. N, zue, & Iqbal (2021, p.1).
According to,Stern,Burke,, & Bruns (2017, p.3) , found “that electricity use and access are
strongly correlated with economic development, as theory would suggest. Despite large
empirical literatures and suggestive case evidence, there are, however, few methodologically
strong studies that establish causal effects on an economy-wide basis. There is some evidence
that reliability of electricity supply is important for economic growth. We propose that future
research focuses on identifying the causal effects of electricity reliability, infrastructure, and
access on economic growth; testing the replicability of the literature; and deepening our
theoretical understanding of how lack of availability of electricity can be a constraint to growth”.
2.2 Electricity access and economic growth
THE GLOBAL COMMISSION TO END ENERGY POVERTY (2020, p. 34), Access to
affordable, reliable and sufficient electricity catalyzes local economies, creates jobs and
improves access to public services, especially in rural areas. Evaluations of development finance
institution (DFI) electricity investments in developing countries have shown a significant impact
on GDP; the effect is especially large in low-income countries with small power sectors.16 In
Senegal, GDP rose 1.7% with lower electricity costs and higher availability of power as a result
of the commissioning of a 70 megawatt (MW) generation project.17 Uganda witnessed an
estimated 2.6% boost to GDP as a result of improvements in the electricity system, including the
commissioning of a 250 MW hydropower plant.18 Investments in the electricity sector generate
new jobs due to construction and operations; however the greatest effect is seen through
increased economic activities.19 There is also growing evidence for the socio-economic impacts
of off-grid solutions such as solar home systems. In East Africa, one-third of the solar home
13
systems purchased are used to extend the working day or boost enterprise activities. These
purchases result in increased earnings by an average of USD 46 per month, equivalent to a 14%
increase on average income in the region.
Despite major effortsacross the developing countries, electrification rate reached 89 percent in
2017 (from 83 percent in 2010),still leaving around 840 million people without access to
electricity. Since 2010, more than 920 million people have gained access to electricity,
representing an average yearly electrification rate of 0.8 percentage points(International Energy
Agency, Internationale Agentur für Erneuerbare Energien, United Nations Statistics Division,
Weltbank, & World Health Organization, 2019, p.10).
In 2015, the electrification trend began to pick up speed. Between 2015 and 2017, an extra 153
million individuals were electrified at a rate of more over 1 percentage point per year. However,
the momentum was uneven across regions, with many people in difficult-to-reach areas,
particularly in Sub-Saharan Africa, where many remain without access (International Energy
Agency, Internationale Agentur für Erneuerbare Energien, United Nations Statistics Division,
Weltbank, & World Health Organization, 2019, p.10).
Efforts to electrify Central and Southern Asia have been particularly successful, with 91 percent
of the population having access to electricity in 2017. Across 2017, access rates in Latin America
and the Caribbean, as well as Eastern and Southeast Asia, reached 98%. India, Bangladesh,
Kenya, and Myanmar have made the most progress among the 20 countries with the largest
populations without electricity since 2010 (International Energy Agency, Internationale Agentur
für Erneuerbare Energien, United Nations Statistics Division, Weltbank, & World Health
Organization, 2019, p.10).
14
Sub-Saharan Africa continues to have the greatest access deficit: 573 million people—more than
one in every two—do not have access to electricity. In addition, the region is home to the 20
countries with the lowest rates of electricity. BurundiChad, Malawi, the Democratic Republic of
Congo, and Niger were the four countries with the lowest electrification rates in 2017
(International Energy Agency, Internationale Agentur für Erneuerbare Energien, United Nations
Statistics Division, Weltbank, & World Health Organization, 2019, p.10).
Progress in electrifying inner cities has been slow, and most informal settlements are still
supplied through fragile distribution networks.In 2017, the rural access rate was 79%, which was
lower than the urban access rate of 97%. To reach remote areas, off-grid solutions are essential;
these include solar lighting systems, solar home systems, and—increasingly—mini-grids
(International Energy Agency, Internationale Agentur für Erneuerbare Energien, United Nations
Statistics Division, Weltbank, & World Health Organization, 2019, p.10).
Sustainable Development Goals “SDG” target 7.1 calls for universal access to affordable,
reliable, and modern energy services. Reliability and affordability remain challenging elements
in many countries, even as the number of household connections increases. In 2017, one-third of
access-deficient countries saw at least one weekly power outage lasting more than four minutes.
In around half of these countries, a minimal, subsistence level of energy usage (30 kilowatt-hours
per month) was unaffordable for 40% of households. Gender has a role in access. Significant
diversity in home access was discovered in key access-deficit nations assessed under the World
Bank's Multi-Tier Framework for Energy (International Energy Agency, Internationale Agentur
für Erneuerbare Energien, United Nations Statistics Division, Weltbank, & World Health
15
International Energy Agency, Internationale Agentur für Erneuerbare Energien, United Nations
Statistics Division, Weltbank, & World Health Organization (2019, p.10), said “If the rate of
progress in expanding access to electricity remained at the same level as that between 2015 and
2017, universal access could be reached by 2030. However, connecting the last of the unnerved
populations may be more challenging than past electrification efforts, since many such
populations live in remote locales or overburdened cities. A projected 650 million people are
likely to remain without access to electricity in 2030, and 9 out of 10 such people will be in Sub-
Saharan Africa”.
The sustained electrification rate in recent years has been quicker than the rate of population
increase in underserved portions of the world, according to recent statistics. Since 2010, global
electrification has been steadily increasing, rising from 83 percent in 2010 to 89 percent in 2017.
(figure 1.3). During the same time span, the worldwide population without access to electricity
decreased from 1.2 billion to 840 million people. Despite a 1 percentage point increase in
electrification between 2015 and 2017, achieving the 0.86 average annual percentage point
increase required to achieve universal access by 2030 (figure 1.4) will be difficult, given lagging
progress in many large access-deficient countries and difficulties inbringing electricity to the
remaining unserved population (International Energy Agency, Internationale Agentur für
Erneuerbare Energien, United Nations Statistics Division, Weltbank, & World Health
Since 1990, the number of individuals without electricity has been falling in all regions, a trend
that began to accelerate in 2015. This decline has been particularly noticeable in Central and
Southern Asia, as well as to a lesser extent in Sub-Saharan Africa, where seven out of ten
persons without access lived in 2017. Eastern and South-eastern Asia's percentage of the global
16
population without access to electricity had fallen to around a fourth of what it had been in 1990.
Between 1990 and 2017, the share in Sub-Saharan Africa more than doubled, reaching 68
percent in 2017, putting Sub-Saharan Africa ahead of Central and Southern Asia as the region
with the most unmet needs (International Energy Agency, Internationale Agentur für
Erneuerbare Energien, United Nations Statistics Division, Weltbank, & World Health
In rural areas, the rate of access expansion accelerated, whereas in urban areas, it remained
nearly constant. The global rural access rate of 79 percent in 2017 (representing a 728 million-
person access deficit) was much lower than the urban access rate of 97 percent (or 108 million
people unserved). Between 2015 and 2017, a global focus on electrifying the rural population
resulted in an average of 60 million additional rural inhabitants gaining access to electricity each
year (the number drops to a net increase of 54 million persons when population growth is
factored in (figure 1.10)). In Central and Southern Africa, incremental rural electrification was
six times the extra rural population.Meanwhile, in Sub-Saharan Africa, rural electrification kept
pace with population growth. Every year, an even bigger number of city dwellers, nearly 93
million on average, obtained access, exceeding global urbanization growth. It's worth noting that
maintaining urban access is more difficult than enhancing rural access from a low base, and the
global urbanization trend predicted for the next decade could result in bigger populations without
access in cities (International Energy Agency, Internationale Agentur für Erneuerbare Energien,
United Nations Statistics Division, Weltbank, & World Health Organization, 2019, p.27).
17
2.3 summary of the Gap Knowledge chapter
During this study, I have reviewed many articles and other literatures closely related to
my research topic from different countries and regions e.g Zimbabwe, Pakistan, Kenya, ecowas,
and sub-Sahara Africa. To find out the relationship between electricity access and economic
growth in Somalia from 2004 to 2019.
Finally; to sum up, the results we still ambiguous in the relationship between electricity
access and economic growth. Most of them show that electricity access has positive significant
impact on economic growth, while, other study shows the negative relationship, therefore, we
can investigate the relationship between them.
18
CHAPTER THREE
METHODOLOGY
3.0 INTRODUCTION
This chapter introduces different units of research methodology including Research design,
Population of the study, Data Collection Instrument, Data collection procedure, Data analysis
procedure, Quality control, Ethical consideration, and limitations of the study.
3.1 Research design
This study was correlation in design because it was aimed to investigate the relationship between
access to electricity and economic growth in Somalia, study was also time series because the
researcher intended to collect research data at different points in time. The study was also
quantitative in design because it is intended to determine the problem at hand numerically.
3.2 Population of the study
The researcher selected a sample of 16 years of time series data from 2004 to 2019 in Somalia
form two sources, world development indictors of World Bank, and tradingeconomics.com.
3.3 Data Collection Instrument
The study used secondary data which is data collected for another purpose. Time series annual
data on access to electricity (% of population), access to electricity (% of rural population), and
access to electricity (% of urban population), and annual GDP growth rate from Somalia over the
period 2004 to 2019 are used in the study. Data obtained from two sources, both deemed reliable,
world development indicators of World Bank (2021) and tradingeconomics.com. The study used
the computer software E-views for applying the econometric analysi
19
3.4 Data collection procedure
identifying and
dowloading putting data in importing data
interpreting
data excel format to eview
the findings
The researcher collected data through some important steps. First, downloading data from World
Bank and tradingeconomics.com. Researchers next entered the data into Excel format and import
it into E-views, a common econometric software program for estimating time series data. In
addition, researchers selected and analyzed the findings that have been subjected to the research
objective.
3.5 Data analysis procedure
In this study, E-views was used to run and taste regression equation.
3.5.1Correlation Analysis
Correlation Analysis referred as Pearson’s correlation coefficient that measures the strength of
the relationship between two variables (dependent and independent variable). The correlation
coefficient with +1 indicates the two variables are positively related while correlation coefficient
with -1 indicates the two variables are negatively correlated with each other.
3.5.2 E-views
According to Thomsen, Sandager, Logerman, Johanson,& Andersen.(2013, p.5), defined E-
views as “E-views is a spreadsheet software used for various types of data analysis. It has some
similarity to the commonly used Microsoft Excel and does support this type of files. According
to its creators E-views is characterized as: “EViews provides sophisticated data analysis,
regression, and forecasting tools on Windows based computers".
20
3.5.3 Unit root test
In order to avoid spurious regression, we have to test the stationary of the variables because most
economic data have a unit root (i.e., they are not stationary). To circumvent this issue, the study l
used the ADF to perform a stationary test on the time series data. Akiake information criteria
(AIC) was used to establish the best leg length for the ADF test. The relevant time series will be
called nonstationary if the data contains a unit root.
3.5.4 ARDL Model Specification
ARDL Model Specification After estimating the level of integration of the variables the next step
is to find the short run and long run dynamics relationship among the variables of interest. For
that we apply the bound test approach within the framework of Autoregressive Distributed lag
(ARDL) model purposed by Pesaran et al. (2001) to investigate the presence of co integration
among the variables. the reason for selecting ARDL model it’s relatively more efficient in the
case of small sample and finite sample sizes, and unbiased long-run estimated are obtained. To
apply the bound test procedure the following ARDL will be estimated to find the cointegration
relationship between access to electricity (% of population), access to electricity (% of rural
population), and access to electricity (% of urban population),and economic growth we specify
the following model:
As function:
AGDPGR = f(AEP, AERP, AEUP).
As equation:
∆AGDPGRt= c+β1AGDPGRt-1+ β 2AETPt-i + β 3AEUPt-i + β 4AERPt-i+ 𝛼1∆AGDPGR t-1
+ 𝛼2∆ AETPt-1 + 𝛼3∆ AEUPt-1 + 𝛼1∆ AERPt-1+e1---------------eq3.1
21
Where AGDPGR, EATP, EAUP, AERP stands for annual GDP growth rate, access to electricity
(% of population), access to electricity (% of rural population), and access to electricity (% of
urban population) respectively. While ᵦ0, C0, 𝛼, and e are representing coefficients of long-run,
short-run, and error term respectively.
3.5.5 Error correction model
ECM The relationship and ECM were introduced by Engle and Granger (1987). ECM mainly
provides causal factors that are may influence the variables. The negative sign of ECM and
statistically significant confirmed that long-run relationship can be achieved among the variables
included in the model. This method is the easiest to confirm co-integration among the variables
(Bannerjee et al. 1998). Error correction model (ECM) among the co-integrated variables
explains change in dependent variables due to independent variable. The divergence in
dependent variable shows short period of time to long run equilibrium relationship (Masih and
Masih, 1997). 35 Now co-integration relationship exist between the variables, the next steps is
estimate the equation (4.6) via ARDL technique by choosing the order of the model using
Akaike Information Criteria (AIC) to achieve the short-run and long run dynamics parameters
and Error correction from equation (2) is given as below:
∆AGDPGR t=𝛼0++ 𝛼1∆AGDPGRtt-1 + 𝛼2∆ AETPt-1 + 𝛼3∆ AEUPt-1 + 𝛼1∆
AERPt-1+λECTt-1+e1t-------------------eq3.2
Where λ stands for speed of adjustment parameter with negative sign
3.5.6 T-test Statistic
Similarly, the t-test statistic is one of the most common statistical data analysis processes for
hypothesis testing. It tests the methods related with two explanatory samples (Lucey, 2002). It
tests the methods related with two explanatory samples (Lucey, 2002). The T-test statistic also
22
examine if the impacts differences in the two samples have happen by chance. Other than that,
the sample populations are assumed to have equivalent variances and have normal distribution.
According to Lucey (2002), interval or ratio data is required in the T-test statistic in term of data
collection. Specifically, statistics T-test analyzes the data collected by using the t-test by way of
determining a P-value that indicating the likelihood that people will get the result by chance.
Hence, the researchers will reject null hypotheses when the P-value of T-test falls below 0.01,
0.05, or 0.1, and conclude that independent variable and dependent variable are significantly
related.
3.5.7F-test Statistic
F-test statistic is one of the statistical tests to measure the whole significance of regression. There
is F-distribution of the test statistic under the null hypothesis. F-test statistic takes place when the
particular model consists of more than three or multiple parameters. Generally, it is applicable
whenever make comparison among the statistical models given that the models fit to its data set
in the purpose to select the best-fit model to the population. Specifically, it analyzes the data
collected by analysts inherent with F-test statistic by way of determining the value of probability
which indicates the probability that the one could achieve the result by opportunity. Thus, if the
value of probability falls below 0.01, 0.05, or 0.10, researchers will take the alternative
hypotheses into account and indicate that the endogenous variable can be significantly explained
by the whole model.
3.5.8 Diagnostic test
The researcher uses various hypotheses testing to test the model because it might have
econometric problem. Firstly, check the whether the model is free from multicollinearity,
23
autocorrelation and oheteroscesaticity problems. Besides, researcher also needs to test model
specification and normality test.
3.5.8.1 Model Specification and Normality test
Model specification error is referring to a model that have correctly specified because
heteroscedasticity and autocorrelation may be a potential problem in misspecification model. In
order to make sure that model specification is correct or good mode, researcher should choose
the relevant explanatory variables that should be consist in the model. Besides, selected
independent variable is uncorrelated with error term. The researcher also should select an
appropriate form of variables. The stable estimated parameter value is important. There is three
type of model specification error which is omitting a relevant independent variable that plays
important role in the determination of dependent variable. Besides, model specification error
occurs when including an unnecessary, irrelevant or non-inflation independent variable. When
the researcher wrongly specifies a model, the problem might be arising. Gujarati and Porter
(2009) state that, model specification error occurs if there consists of ellipsis of related variable
or include not related variable. Lastly, wrong functional form of explained and explanatory
variables is also a type of model specification error. The researcher can use Ramsey’s RESET
test to detect the model specification error. Ramsey (1969) state that if the result of Ramsey’s
RESET test shows that there is a model specification error it means that the presence of
autocorrelation and heteroscedasticity problem is unable to solve. The researcher needs to
changes the model in order to solve the problem.
24
3.5.8.2 Multicollinearity
Multicollinearity arises when there was some or all of the explanatory variables are highly
correlated with one another. If it is present, the regression model has difficulty telling which
explanatory variables are influencing the dependent variables. There was five practical
consequences of multicollinearity which is large variances and covariances of OLS estimators,
wider confidence interval, insignificant t ratio, a high R-squared but few significant t ratio and
sensitivity of OLS estimators and their standard error to small changes in data. The
mullticollinearity problem may cause an effect on the regression model. If there is any
correlation among the explained variable and explanatory variables it may causes the researcher
enable to interpret the result correctly due to it may have opposite sign to the actual relationship
Thus, in order to detect multicollinearity problem, there are several method to apply such as by
evaluating a low R2 value, observe and predict this by observing and analysing the reliability of
the T-test, variance inflation factor (VIF) and tolerance (TOL). If the VIF of a variable exceeds
10, which the variable is said be highly collinear. Besides, if the TOL is closer to zero, the degree
of collinearity of that variable with other explanatory will be greater and vice versa (Gujarati &
Porter, 2009).
3.5.8.3Heteroscedasticity
Researchers do the heteroscedasticity test in order to test for the constant variance of error terms.
Researchers use Breusch-PaganGodfrey test to determine the heteroscedasticity problem in this
research. Gujarati and Porter (2009) despite that when heteroscedasticity problem arise in a
model which is have error terms that have an inconstant variance. There might larger variance
while quantities of some explanatory variables contribute larger or smaller. Therefore,
25
heteroscedasticity problem in the model will no more have minimum variances and cause an
incorrect result. If heteroscedasticity arise in the model, it will difficult to solve the problem.
3.5.8.4 Autocorrelation
According to Gujarati and Porter (2009), autocorrelation refers to correlation in error term
among component of observation order in period or space. In this research, researchers using
time series dataAnd may cause correlation among disturbance terms. In the other hand,
autocorrelation also might occur when researchers include too many irrelevant variables or
omitted some important variables from the model. Researchers might get bias result when
autocorrelation occurs in the model. Autocorrelation problem may arise in the model when the
error term for any observation is related to the error term of other observation, thus researchers
will run Breusch-Godfrey Serial Correlation LM Test to check for autocorrelation problem.
3.6 quality control
In this study, validity and reliability of the research instruments was concerned with the extent to
which the research instrument yields the same results.Before any other step, the researcher
checked the validity of data which is secondary data that deemed most reliable in research field.
3.7 Limitations of the study
It can be difficult to collect accurate data for the variables you require, and data can also
sometimes face many econometrics problems also data were not available on government
agencies such as ministry of finance, central bank ,and e.t.c. Its available in foreign agencies
such as world bank, and tradingeconomics.com whose data base that mostly used are estimation
26
3.8 Ethical considerations
In this study, all copyrights were observed and correctly cited. The data used in this study
received from World Bank database and tradingeconomics.com and the data is free from any
underestimation and over estimation
27
CHAPTER FOUR
FINDINGS AND DISCUSSION
4.0 Introduction
This chapter displayed the analysis of data, the researcher analyzed and interpreted short-run
empirical results obtained from the collected data and identified which Independent variables
have significantly to effect on Economic Growth through autoregressive distributed lag model.
We further made diagnosis checking about: normality test, multicollinearity, autocorrelation,
heteroscedasticity and model specification test. Also include this chapter unit root test pair-wise
granger causality and Co integration Test by using E-views 10.
4.1 Unit root test
Table 4.1 account the outcome of unit root test for the variables in the study. A unit root test was
solely performed with augmented dickey-fuller (ADF) test by considering the levels of the
variables, first with an intercept and with both intercept and trend and test was extended to
include the first difference of the variables that were not stationary as could be seen in table 4.1.
It tests whether AGDPGR, AEP, AEUP, and AERP are stationary at level or not.
Table 4.1: RESULTS OF ADF unit root test
variable Probability value at Probability value at Decision
level first difference
Constant Constant Constant Constant Stationary Stationary
and trend and At level at first
trend difference
AGDPGR 0.0044 0.0105 0.0000 0.0001 I(0)
28
AEP 0.9950 0.6431 0.0012 0.0001 I(1)
AEUP 0.8843 0.0173 0.0000 0.0000 I(0)
AERP 0.7777 0.2690 0.0036 0.0185 I(1)
Hypothesis
H0: Annual gross domestic product growth rate has unit root
H1: Annual gross domestic product growth rate has not unit root problem
Decision rule
If the probability value does not exceed the 0.05 significance level, we reject the null
hypothesis, in which case AGDPGR time series is stationary otherwise, we don’t reject it in
which case the AGDPGR time series is stationary.
Conclusion
We reject H0 since the P-value of AGDPGR displayed in the table 4.1 is 0.0105, which less than
0.05. Thus, there is sufficient evidence to conclude that Annual gross domestic product growth
rate is stationary at level
Hypothesis
H0: Access to electricity (% of population) has unit root
H1: Access to electricity (% of population) has not unit root problem
29
Decision rule
hypothesis, in which case AEP time series is stationary otherwise, we don’t reject it in which
case the AEP time series is stationary.
Conclusion
We don’t reject H0 since the P-value of AEP displayed in the table 4.1 is 0.6431, which is more
than 0.05. Thus, there is sufficient evidence to conclude that Access to electricity (% of
population) is not stationary at level.
Hypothesis
H0: Access to electricity (% of urban population) has unit root
H1: Access to electricity (% of urban population) has not unit root problem
Decision rule
hypothesis, in which case AEUP time series is stationary otherwise, we don’t reject it in which
case the AEUP time series is stationary.
Conclusion
We reject H0 since the P-value of AEUP displayed in the table 4.1 is 0.0173, which less than
0.05. Thus, there is sufficient evidence to conclude that Access to electricity (% of urban
population) is stationary at level
Hypothesis
H0: Access to electricity (% of rural population) has unit root
H1: Access to electricity (% of rural population) has not unit root problem
30
Decision rule
hypothesis, in which case AERP time series is stationary otherwise, we don’t reject it in which
case the AERP time series is stationary.
Conclusion
We don’t reject H0 since the P-value of AEP displayed in the table 4.1 is 0.2690, which is more
than 0.05. Thus, there is sufficient evidence to conclude that Access to electricity (% of rural
population) is not stationary at level.
The above hypothesis indicated that l some of the variables are integrated of I (0), while others
are integrated of I (1). Having mixture of order of integration it allows for the usage of ARDL
approach for test for co integration.
4.2 Co-integration test
In statistics, co-integration test is used for test whether there is long run association between
dependent variable and independent variable, in this study we ascertained if there is long-run
association among Annual gross domestic product growth rate and access to electricity( % of
population), access to electricity( % of rural population), and access to electricity( % of urban
population).
31
Table 4.2: F-statistics for testing the existence of Long-run Co-integration
country f-statistics Lag length Significance Bound critical
level values
Somalia I(0) I(0)
10% 2.72 3.77
1 5% 3.23 4.35
8.962435 1% 4.29 5.61
Hypothesis
H0: there is no co-integration (long-run association)
H1: there is co-integration (long-run association)
Decision rule
If the computed f-statistics does not exceed the upper bound critical value, we do not reject the
null hypothesis, in which case there is no long-run association among variables otherwise, we
reject it in it, which case there is no long-run association among variables .
Conclusion
Since the computed f-statistics (8.9624350) exceeded all upper bound critical values as shown
the table 4.2, so we reject the null hypothesis therefore, we conclude there is co-integration
(long-run association) among the variables in the study.
4.3 Pair wise Granger Causality Tests
32
Table 4.3.1 Pair wise Granger Causality Tests
Pairwise Granger Causality Tests
Date: 02/06/22 Time: 23:43
Sample: 1 16
Lags: 1
Null Hypothesis: Obs F-Statistic Prob.
AEP does not Granger Cause AGDPGR 15 1.69812 0.2170
AGDPGR does not Granger Cause AEP 1.41988 0.2565
Hypothesis
H0: there is no causal relationship between AGDPGR and AEP.
H1: there is causal relationship between AGDPGR and AEP.
Decision rule
If the probability value exceeds the 0.05 significance level, we don’t reject the null hypothesis, in
which case there is no causal relationship between AGDPGR and AEP. Otherwise, reject it in
which case t there is causal relationship between AGDPGR and AEP.
Conclusion
Since the p-value of the each variables of AGDPGR and AEP exceeds the significance level
which is 0.05 as shown the table 4.3.1, we do not reject the null hypothesis which therefore, there
is no causal relationship between AGDPGR and AEP.
33
Date: 02/06/22 Time: 23:48
Sample: 1 16
Lags: 1
AEUP does not Granger Cause
AGDPGR 15 1.64352 0.2241
AGDPGR does not Granger Cause AEUP 1.19502 0.2958
Hypothesis
H0: there is no causal relationship between AGDPGR and AEUP.
H1: there is causal relationship between AGDPGR and AEUP.
Decision rule
which case there is no causal relationship between AGDPGR and AEUP. Otherwise, reject it in
which case t there is causal relationship between AGDPGR and AEUP.
Conclusion
Since the p-value of the each variables of AGDPGR and AEUP exceeds the significance level
is no causal relationship between AGDPGR and AEUP.
34
Date: 02/06/22 Time: 23:50
Sample: 1 16
Lags: 1
AERP does not Granger Cause
AGDPGR 15 1.18611 0.2975
AGDPGR does not Granger Cause AERP 0.20376 0.6597
Hypothesis
H0: there is no causal relationship between AGDPGR and AERP.
H1: there is causal relationship between AGDPGR and AERP.
Decision rule
which case there is no causal relationship between AGDPGR and AERP. Otherwise, reject it in
which case t there is causal relationship between AGDPGR and AERP.
Conclusion
Since the p-value of the each variables of AGDPGR and AERP exceeds the significance level
is no causal relationship between AGDPGR and AERP.
35
Table 4.4: Long Run Estimation Result
Dependent Variable: AGDPGR
Method: ARDL Long Run Form and Bounds Test
Date: 02/05/22 Time: 23:50
Sample: 1 16
Included observations: 15
Variable Coefficient Standard error T-statistic Probability
AEP 0.171127 0.274368 0.623713 0.5526
AERP 0.215524 0.174575 1.234564 0.2568
AEUP -0.445887 0.454017 -0.982093 0.3588
The estimated coefficients of the long-run relationship shows that AEP, and AERP has positive,
insignificant and long-run impact on annual gross domestic product growth rate in Somalia under
the study review. While, AEUP has negative, and insignificant impact on AGDPGR. Therefore,
In conclusion there is no long run relationship between AEP, AEP, and AEP, and AGDPGR.
Table 4.5: short Run Results
Dependent Variable: (AGDPGR)
Method: ARDL Error Correction Regression
Date: 02/05/22 Time: 23:52
Sample: 1 16
Included observations: 15
36
Variable Coefficient Standard error T-statistic Probability
C -23.93961 3.655576 -6.548793 0.0003
D(AEUP) -4.938238 0.699255 -7.062142 0.0002
D(AERP) -0.014845 0.170264 -0.087187 0.9330
D(AEP) 25.41329 3.688803 6.889305 0.0002
ECM (-1) -1.667348 -0.232987 -7.156390 0.0002
R-squared 0.847710 Mean dependent var -0.006667
Adjusted R-squared 0.786794 S.D. dependent var 0.625033
S.E. of regression 0.288605 Akaike info criterion 0.613683
Sum squared resid 0.832926 Schwarz criterion 0.849700
Log likelihood 0.397377 Hannan-Quinn criter. 0.611169
F-statistic 13.91602 Durbin-Watson stat 2.447053
Prob(F-statistic) 0.000429
The estimated coefficient of the short run relationship shows that ΔAEP has positive and short –
run impact on economic growth in Somalia under this paper. This signifies that an increase in
ΔAEP will lead to increase in economic growth of Somalia. Increase in 1% ΔAEP leads
increases 25.41329 % increase in economic growth all else constant. Interestingly, t statistics
shows the variable is significant at 5 percent level of significance as the probability value in table
4.5 is less than 0.05 (p-value < 0.05). From the statistically results, it is confidently conclude that
37
ΔAEP has positive and significant impact on economic growth of Somalia. The result
corroborated the finding of Mhaka et al (2020).
Considering the impact of Access to electricity (% urban population), it has negative and
significant impact on economic growth in Somalia, This signifies that an increase in ΔAEUP
will lead to decrease in economic growth of Somalia. Increase in 1% ΔAEUP leads a decrease
4.938238% in economic growth all else constant. Interestingly, t statistics shows the variable is
significant at 5 percent level of significance as the probability value in table 4.5 is less than 0.05
(p-value < 0.05). From the statistically results, it is confidently conclude that ΔAEUP has
negative and significant impact on economic growth of Somalia. The result corroborated the
finding of Mhaka et al (2020).
Access to electricity (% urban population) also shows Negative impact on economic growth, but
statistically insignificant relationship with economic growth in Somalia under the period
reviewed. Furthermore, Increase in 1% ΔAERP leads a decrease -0.014845% in economic
growth all else constant.. negative linkage between ( ΔAERP) and economic growth is also
confirmed by previous study Mhaka et al (2020) and Rehman and deyun (2018).
The ECM was obtained as (-1.667348) which is negative and significant at 5% level of
significance. The negative sign of error term means that errors in the short run converge or adjust
towards long run equilibrium with the speed of 167 percent. In other words, errors are corrected
in the present period and tied to long run equilibrium with 167% magnitude.
The multiple coefficient of determination R-squared, it stands for the percentage or proportion of
variations in annual gross domestic product growth rate (AGDPGR) explained by the three
independent variables (ΔAEP, ΔAEUP, and ΔAERP) jointly. Therefore as shown in table 4.5,
the multiple coefficient of determination (R2) is 0.847710which is approximately 85%. The
38
result implies on average about 85%. of variations on Somalia economic growth is explained by
the changes of these three independent variables (AEP, AEUP, and AERP) jointly. While about
6.7% of the variations in Somalia economic growth are explained by other remain independent
variables. The unexplained variations are explained to other external factors not included in the
model and the reason is common in many time series data. Adjusted R 2 is 0.786794.
4.5.1 T-Statistic Test
T-test will be used in this study in the purpose of determining whether the independent
variables is significant to the explained variable by assuming the model is normally distributed at
α = 0.05
Hypothesis:
H0: α ΔAEP=0 (α ΔAEP is not significant)
H1: α ΔAEP=0 (α ΔAEP is significant)
Decision rules:
We reject H0 if the value of probability for t-test is less than 0.05. Otherwise, we do not reject H0.
Conclusion:
We reject H0 since the P-value of access to electricity (% of population) as displayed in the
table 4.5 is 0.0002, which less than 0.05. Thus, there is sufficient evidence to conclude that of
access to electricity (% of population) significantly affecting the AGDPGR in Somalia at 5%
significant level.
Hypothesis:
H0:α ΔAEUP=0 (α ΔAEUP is not significant)
H1: αΔAEUP=0 (αΔAEUP is significant)
39
Decision rules:
Conclusion:
We reject H0 since the P-value of access to electricity (% of urban population) as displayed in
the table 4.5 is 0.0002, which less than 0.05. Thus, there is sufficient evidence to conclude that of
access to electricity (% of urban population) significantly affecting the AGDPGR in Somalia at
5% significant level.
Hypothesis:
H0: α ΔAERP=0 (α ΔAERP is not significant)
H1: αΔAERP=0 (αΔAERP is significant)
Decision rules:
Conclusion:
We reject H0 since the P-value of access to electricity (% of population) as displayed in the table
4.5 is 0.9330, which more than 0.05. Thus, there is sufficient evidence to conclude that of access
to electricity (% of rural population) insignificantly affecting the AGDPGR in Somalia at 5%
significant level.
4.5.2 F-Statistic Test4
F-test is used in this research paper to determine the overall significance of the economic model
(Spanos, 1986).
40
Hypothesis:
H0: α i=o (no linear relationship)
H: α i=o (at least one independent variable affects AGDPGR)
Where α i= α1, α2, and α3
Decision rules:
We reject H0 if the value of probability for f-test is less than 0.05. Otherwise, we do not reject H0.
Conclusion:
We reject because the probability value of F-test is 0.000429, which less than 0.05. Therefore,
there is sufficient evidence for us to conclude that there is at least one independent variable is
significant in explaining the dependent variable (Gujarati & Porter, 2009).
4.5.3 Model Specification Test
Hypothesis:
H0: The model is correctly specified.
H1: The model is not correctly specified.
Decision rules:
1) We do not reject if P-value of F-stat more than 0.05, indicating that the model is correctly
specified.
2) We reject if P-value of F-stat less than 0.05, indicating that the model is not correctly
specified (Gujarati & Porter, 2009).
41
Table 4.5.1Ramsey Reset test
Value df Probability
F-statistic 3.479648 (4, 3) 0.1668
Conclusion:
We don’t reject H0 as the probability value of F-statistic (0.1668) is more than 0.05. Hence, we
have enough evidence to conclude that the model is correctly specified at the significance level
of 0.05.
4.5.4 Normality Test
Hypothesis:
H0: Error term is normally distributed.
H1: Error term is not normally distributed.
Decision rules:
1) 1) we do not reject H0 if the P-value for JB-stats is more than 0.05, indicating that the error
term is normally distributed.
2) We reject H0 if the P-value for JB-stats is less than 0.05, indicating that the error term is not
normally distributed
Table 4.5.2: Jarque-Bera Normality Test
Jarque-Bera 0.334074
Probability 0.846168
42
Conclusion:
As value of probability for JB stat is 0.846168, which is more than 0.05, we do not reject H0.
Therefore, there is sufficient evidence to conclude that the error term is normally distributed at
the significance level of 0.05. Jarque-Bera 0.334074 Probability 0.846168
4.5.5 Multicollinearity test
Hypothesis:
H0: Multicollinearity problem does not exist.
H1: Multicollinearity problem does exist.
Decision rules:
1) We do not reject if VIF less than 10, indicating that there is no serious multicollinearity
problem.
2) We reject if VIF more than 10, indicating that there is a serious multicollinearity problem
Table 4.5.3: Variance Inflation Factor (VIF) Analysis
Coefficient Uncentered Centered

Variable Variance VIF VIF
AGDPGR(-1) 0.077766 78.00208 1.509282

AEUP 3.293981 1055809. 41473.72
AEUP(-1) 4.436925 1294836. 56378.10
AERP 0.162042 1077.598 149.7290
AERP(-1) 0.131830 741.1690 128.0117
AEP 89.46524 7249282. 558832.6
AEP(-1) 100.2024 7137106. 616648.3
C 183.0410 23074.45 NA
43
Conclusion:
Since the VIF for each independent variable is greater than 10 as a thumb of rule, there is
adequate evidence to indicate that there is serious multicollinearity suspected among independent
variables at the significance level of 0.05.
4.5.6 Heteroscedasticity
Hypothesis:
H0: Heteroscedasticity problem does not exist.
Hi: Heteroscedasticity problem exists.
Decision rules:
1) We do not reject if P-value of F-stat more than 0. 05, indicating that there is no
heteroscedasticity problem.
2) We reject if P-value of F-stat less than 0.05, indicating that there is a heteroscedasticity
problem.
Table 4.5.4: Heteroskedasticity Test: Breusch-Pagan-Godfrey
F-statistic 2.401699 Prob. F(7,7) 0.1352
Obs*R-squared 10.59044 Prob. Chi-Square(7) 0.1575
Scaled explained SS 2.023493 Prob. Chi-Square(7) 0.9585
Conclusion:
We do not reject H0 since P-value of F-stat is 0.1352, which is more than 0.05; hence, there is
sufficient evidence to conclude that there is no heteroscedasticity problem at the significance
level of 0.05.
44
4.5.7 AUtocorrelation
Hypothesis:
H0: There is no autocorrelation problem..
Hi: There is an autocorrelation problem..
Decision rules:
1) We do not reject H0 if P-value of the Chi-squared more than 0. 50, indicating that there is no
autocorrelation problem.
2) We reject H0 if P-value of the Chi-squared more than 0.05 indicating that there is an
autocorrelation problem ,
Table 4.5.5: Breusch-Godfrey Serial Correlation LM Test
F-statistic 2.228661 Prob. F(1,6) 0.1861
Obs*R-squared 4.062620 Prob. Chi-Square(1) 0.0438
Conclusion:
Since the value of probability for Chi-square (0.0438) shown in the table 4.5.5 is less than 0.05,
we reject H0. Thus, we do not have sufficient evidence to conclude that there is no
autocorrelation problem in the model at the significance level of 0.15.
45
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This chapter consists of two sections, the first sections deals with the summary of major findings
and conclusions, while section discusses the recommendation of the study.
5.1 Conclusion
This study is conducted to investigate the relationship between electricity access (% of
population), electricity access (% of urban population), and electricity access (% of rural
population) and economic growth in Somalia, using annual time series data over the period 2004
to 2019. Data was obtained from two sources: world development indicators of World Bank
(2021) and tradingeconomics.com. Therefore it’s required to check unit root, thus in this study
Augmented Dickey-Fuller (ADF) test was used to check unit root problem and found that the
variables were integrated of I(0) and I(1) none was integrated of I(2).
The main results of this research is that electricity access (% of population) has positive and
significant impact on economic growth, while electricity access (% of urban population) has
negative and significant impact on economic growth. Electricity access (% of rural population)
has no significant impact on economic growth. And finally there is no casualty relationship
between electricity access and economic growth.
5.2 Recommendation of the study
1. As the results show electricity access is critical for improving the different productive
and social opportunities of people, the Somalia fedral government has to regulate energy
sector to ensure that all people have equal and affordable access to energy.
46
2. The Somalia federal government has to improve social-economic development of the
people by increasing energy accessibility such as electricity supply and access through on
grid and off –grid systems. This will improve the people’s socioeconomic activities as
they will be able to carry out productive activities such as irrigation, processing, and
manufacturing certain agriculture output.
3. The Somalia federal government has to co-operate with private sector who current
produce electricity and they must pay attention to producing energy from alternative
sources such as natural gas, and wind.
47
References
Association internationale pour l'évaluation du rendement scolaire, & International Energy
Agency. (2017). Energy access outlook 2017: From poverty to prosperity. Retrieved
from https://iea.blob.core.windows.net/assets/9a67c2fc-b605-4994-8eb5-
29a0ac219499/WEO2017SpecialReport_EnergyAccessOutlook.pdf
Gujarati, D.N., and Porter, D.C. (2009).Basic econometric (2nd ed).
HALLER, A. P. (2012). Concepts of Economic Growth and Development. Challenges of Crisis
and of Knowledge. Economy Transdisciplinarity Cognition, 15(1), 66-71. Retrieved from
https://www.researchgate.net/publication/309577823_Concepts_of_Economic_Growth_
and_Development_Challenges_of_Crisis_and_of_Knowledge/link/58184cec08aeffbed6
c35407/download
International Energy Agency, Internationale Agentur für Erneuerbare Energien, United Nations
Statistics Division, Weltbank, & World Health Organization. (2019). Tracking SDG 7:
The energy progress report 2019.
Ivic,, M. M. (2015). ECONOMIC GROWTH AND DEVELOPMENT. (JPMNT) Journal of
Process Management – New Technologies, International, 3(1). Retrieved from
https://scindeks-clanci.ceon.rs/data/pdf/2334-735X/2015/2334-735X1501055I.pdf
Mhaka, S. et al. (2020). Impact of Rural and Urban Electricity Access on Economic Growth in
Zimbabwe. International Journal of Energy Economics and Policy, 10(6), 427-434.
48
N, zue, F. F., & Iqbal, B. (2021). Access to Electricity and Economic Performance in West
Africa: How do they relate? IOSR Journal of Humanities And Social Science (IOSR-
JHSS) , 26(1), 01-14.
Onuonga, S. M. (2020). Economic Growth, Electricity Access, and Remittances in
Kenya. Management and Economics Research Journal, 6(2), 1-13.
OGBEBOR, T. O. (2021). ACCESS TO ELECTRICITY AND ECONOMIC GROWTH IN
SUB-SAHARAN AFRICA: IS THERE AN ENERGY-GROWTH NEXUS? Journal of
Economics and Allied Research, 6(1), 103-119.
Rehman, A., & Deyuan, Z. (2018). Investigating the Linkage between Economic Growth,
Electricity Access, Energy Use, and Population Growth in Pakistan. applied sciences, 1-16.
Stern, D. I., Burke, P. J., & Bruns, S. B. (2017). The Impact of Electricity on Economic
Development: A Macroeconomic Perspective. EEG State-of-Knowledge Paper Ser ies, 1(1).
THE GLOBAL COMMISSION TO END ENERGY POVERTY. (2020). 2020 REPORT–
ELECTRICITY ACCESS.
Thomsen, A., Sandager, R., Logerman, A., Johanson, J., & Andersen, S. (2013). Introduction to
EViews 6.0/7.0p.5. Retrieved from
https://studerende.au.dk/fileadmin/www.medarbejdere.au.dk/it/BSS_Analysevaerktoejer/Eviews
/Eviews_7.0_Manual.pdf
49
APPENDIX A: ACTIVITY REPORT
Activities date
Searching articles July, 1-15, 2021
Collecting and Reading articles July, 3116-, 2021
Selecting topic August,1,2021
Sending articles to the supervisor August, 15, 2021
Starting proposal September,24, 2021
Completing proposal January, 9, 2022
Submitting the proposal to supervisor January, 10, 2022
Completing the draft February,9,2022
Submitting final draft to the supervisor February,9,2022
Printing final draft February, 17, 2022
Submitting hard copy of draft to the head of February, 19,2022
academic of economics
50
APPENDIX (B :) Budget (estimated)
description Amount in us dollar
Internet cost $120
Printing Expenses $20
Transportation Expenses $25
51

Relationship Between Access To Electricity and Economic Growth

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Relationship Between Access To Electricity and Economic Growth

Uploaded by

Copyright:

Available Formats

FACULTY OF ECONOMICS AND MANAGEMENT SCIENCE

THE RELATIONSHIP BETWEEN ACCESS TO ELECTRICITY AND

ECONOMIC GROWTH IN SOMALIA

LIIBAAN CABDULAAHI CALI

A THESIS SUBMITTED IN PARTIAL FULFILLMENT FOR THE

REQUIREMENTS OF THE AWARD OF BACHELOR OF ECONOMICS

AND MANAGEMENT SCIENCE OF SOMALI NATIONAL UNIVERSITY

Name of the candidate: LIIBAAN CABDULAAHI CALI

under my direct supervision.

Supervisor Name: ABDINASIR KATIB

Date: ___ /_____ /________

it for submission for further consideration.

Dean of the Faculty of Economics

Prof: Hassan Osman Ga’al

Signature ___________________________ Date: _____/______/________________

us how to write research proposal.

government has to improve social-economic development of the people by increasing energy

activities such as irrigation, processing, and manufacturing certain agriculture output.

Keywords AEP, ACCEES TO ELECTRICITY, ARDL, AND ECONOMIC GROWTH

SUPERVISOR’S APROVAL .................................................................................................. iii

ABSTRACT ................................................................................................................................. vii

CHAPTER ONE ........................................................................................................................... 1

1.1 BACKGROUND OF THE STUDY ................................................................................... 1

1.2 PROBLEM STATEMENT ................................................................................................ 3

1.3 General objective ................................................................................................................. 4

1.4 specific objectives ................................................................................................................ 4

1.4 Research questions .............................................................................................................. 4

1.5 Hypothesis ............................................................................................................................ 5

1.6 Justification of the study ..................................................................................................... 5

1.8 Scope of the study ................................................................................................................ 5

1.8.1 Time scope......................................................................................................................... 6

1.8.2 Geographical scope .......................................................................................................... 6

1.9 definitions of key terms ..................................................................................................... 6

1.10 Conceptual frame work ................................................................................................... 7

CHAPTER TWO .......................................................................................................................... 8

LITERATURE REVIEW ............................................................................................................ 8

2.0 INTRODUCTION ............................................................................................................... 8

2.1 .1 Theoretical Literature Review ....................................................................................... 8

2.1.2 Empirical literature reviews............................................................................................ 9

2.2 Electricity access and economic growth .......................................................................... 13

2.3 summary of the Gap Knowledge chapter ....................................................................... 18

CHAPTER THREE .................................................................................................................... 19

3.0 INTRODUCTION ............................................................................................................. 19

3.1 Research design ................................................................................................................. 19

3.2 Population of the study ..................................................................................................... 19

3.3 Data Collection Instrument .............................................................................................. 19

3.4 Data collection procedure ................................................................................................. 20

3.5 Data analysis procedure.................................................................................................... 20

3.5.1Correlation Analysis ....................................................................................................... 20

3.5.4 ARDL Model Specification ............................................................................................ 21

3.5.5 Error correction model .................................................................................................. 22

3.5.6 T-test Statistic ................................................................................................................. 22

3.5.7F-test Statistic .................................................................................................................. 23

3.5.8 Diagnostic test ................................................................................................................. 23

CHAPTER FOUR ....................................................................................................................... 28

FINDINGS AND DISCUSSION ................................................................................................ 28

4.0 Introduction ....................................................................................................................... 28

4.1 Unit root test ...................................................................................................................... 28

4.2 Co-integration test ............................................................................................................. 31

4.3 Pair wise Granger Causality Tests .................................................................................. 32

Table 4.4: Long Run Estimation Result ................................................................................ 36

Table 4.5: short Run Results .................................................................................................. 36

4.5.1 T-Statistic Test ................................................................................................................ 39

Date: _ /_ /______

Signature _________________________ Date: _//____________