Electricity energy and industrial growth in Kenya: 1983-2020

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.