Abstract:
Kenya’s economic growth is affected by among other factors slow industrial growth.
Electricity energy is an important factor of production. Rapid industrialization is a function of
among other variables adequate electricity energy. The main objective of this study was to
analyze the relationship between electricity energy and industrial growth in Kenya.
Specifically, the study sought to determine how electricity consumption affects industrial
growth in Kenya; examine the effects of electricity supply on industrial growth in Kenya;
evaluate how changes in electricity tariff affects industrial growth in Kenya and describe
effects of electricity access on industrial growth in Kenya. This study was explanatory in
nature and used time series data for the period 1983 to 2020, to establish the relationship
between the variables. The study adopted the Endogenous Growth Model. Aggregate output
was proxied by industrial output and technology was represented by energy. Energy was
disaggregated to electricity consumption, electricity supply, electricity tariff and electricity
access. The study used Johansen test to test for cointegration, thereafter the vector error
correction model was specified. The coefficient of the error term was -0.062 implying that the
model will settle in the long run. On average ceteris paribus in the short run, the coefficient
for electricity consumption was 0.05; the coefficient of electricity supply was 0.41; electricity
tariff was -0.06 and the electricity access was 0.02. The most important determinant for
industrial growth in Kenya was found to be electricity supply. The study concluded that
increase in electricity consumption, electricity supply and electricity access encourage
industrial growth, on the contrary an increase in electricity tariff inhibits industrial growth.
The study recommends that the government should ensure adequate electricity generation to
meet the growing electricity consumption and electricity tariff should be managed to
encourage industrialization.
