Oil Consumption and Economic Growth Nexus in Tanzania Co integration and Causality Analysis

Over the years, there has been a radical increase in energy consumption in Tanzania. Oil is the most energy source which is highly consumed in the country. The country imports refined oil in bulky amount to support day-to-day economic activities. This oil importation has been associated with imported inflation, budget deficits and trade deficits. This challenge has motivated the researcher to pursue this study by analyzing the relationship between oil consumption and economic growth for the period 1972-2010. The purpose is to ensure sustainable growth by regulating excessive oil importation. The study used modern econometric techniques in pursuing time series analysis. All variables were non-stationary at level and they become stationary after the first difference i.e. I(1). Johansen Cointegration test revealed one cointegrating equation. Thus, the variables were cointegrated. Granger causality test suggested unidirectional causal relationship running from per capita oil consumption to oil prices and unidirectional causal relationship running from per capita real GDP to per capita oil consumption. The study supports conservation hypothesis. There will be no harm to the economy due to reduction of oil importation. Thus, it is very important for the country to accelerate oil exploration and extraction efforts and concurrently investing more in renewable technologies. This will ensure viable energy supply and hence sustainable growth and development in the country.