Co-Integration Testing of the Relationship between Electricity Consumption and Investment in Senegal

Abstract

The study investigates the relationship between natural logarithm of electricity consumption and natural logarithm of investment (proxy gross capital formation in the short and long run ARDL model. The data was obtained from world Development Indicator (WDI). The Phillips-Perron test and ADF test were applied to test stationary of the data in the level and in trend in their first difference between electricity consumption and investment in Senegal. The ARDL model was applied. As the results generated, the trend is statistionary and the intercept is not stationary. The first difference of investment is not a statistically significant and negative sign, while the first difference in electricity consumption is significant and negative coefficient. In the long run, the natural logarithm of electricity consumption as the dependent variable and natural logarithm of investment as the independent variable are significant and positive. The future researchers could also apply co-integration testing when there is a structural break or break point in the data set and error correction model.