Financial depth and electricity consumption in Africa: Does education matter?

Philip Adom

Empirical Economics, 2021, vol. 61, issue 4, No 11, 1985-2039

Abstract: Abstract This article estimates the effect of financial development on electricity consumption for economies with above and below mean human capital index in 45 African countries. The study applied the simultaneous system GMM estimator (adjusted for cross-sectional dependence) and the Aiken and West slope difference test. We performed further robustness checks, such as sample sensitivity analysis to address potential outlier problem. The result showed that the total effect of financial development on electricity consumption is negative, but the direct and indirect effects are different. While, directly, financial development increases electricity consumption, indirectly (via education), it reduces electricity consumption. The Aiken and West slope difference test revealed that the reduction in electricity consumption is twice bigger (in standard deviation terms) in economies with an above mean human capital than in economies with a below mean human capital. In maximum and minimum value terms, it is about seven times bigger for economies with maximum human capital than those with minimum human capital are. The computed country-specific conditional mean marginal effect estimates of financial development revealed significant heterogeneities between economies with well-developed and less-developed human capital. These results suggest that the level of education drives the technical effects associated with financial development, which leads to a reduction in electricity consumption. By implication, advancing the SDG4 goal in Africa is critical to achieving the SDG7 goal. Graphic abstract

Keywords: Electricity consumption; Financial development; Human capital index (search for similar items in EconPapers)
JEL-codes: G0 I2 O5 Q4 Q41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-020-01924-1

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