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Regression Modelling of Electricity Distribution Statistics and Stock Exchange Market Capitalisation in a Developing Country: Evidence from Botswana (2012-2021)

DOI: 10.4236/oalib.1110366, PP. 1-24

Keywords: Stock Market Capitalisation, Electricity Distribution, Regression

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Abstract:

The stock exchange and its performance are important indicators of the economic health of an economy. Electricity generation capacity supports industrialisation. National electricity distribution on the other hand, however, even when mediated with electricity imports to augment a low generation capacity, can complicate both manufacturing and non-manufacturing companies’ desire to operate in an economy which is attempting to industrialise. This is compounded if generation is not matched to consumption patterns, electricity demand and is supported by a robust and efficient network facility that monitors the grid and balances generation, distribution, and demand while minimising leakages through unauthorised connections. The research aims to ascertain the relationship between electricity distribution and stock market performance in a developing country over a ten-year period (2012-2021). Stock market performance is measured using overall stock market capitalisation. The relationship between Botswana’s electricity distribution against the country’s stock market performance has not been studied and modelled prior. The data used for the regression modelling of electricity distribution was obtained from the official national statistics parastatal, Statistics Botswana. The data in quarters of a year, as mega-watt hours (MWH) per year from 2012 to 2021 was employed in this research. Natural logarithms, which do not inherently minimise the effects of skewness in a dataset, were used to minimise the effects of skewed distributions and heteroscedasticity of the data in this period. Similarly, natural logarithms were applied to quarterly Pula (millions) value total stock market capitalisation from the Botswana Stock Exchange (BSE) annual reports over the same period. The findings indicate that although electricity distribution is negatively correlated to stock market performance as measured by total market capitalisation, electricity generation can predict stock market performance to within a less than 6% variance level between predicted and actual quarterly measures of total stock market capitalisation. In the context of Botswana, a country classified as upper-middle income, but is still dependent on diamond mining, the limited job creation in the economy could be addressed by investigating the link between electricity distribution and stock market capitalisation in the wider efforts to industrialise and diversify the economy by attracting listed companies. The implication of the regression model developed from the findings and prediction of stock market performance through total market capitalisation is that, the power utility and government should manage electricity distribution with care and foresight so as to positively impact stock market performance as electricity distribution is a good macro-indicator of economic health and could be a crucial factor that multinationals (MNCs) looking to invest in Botswana would consider.

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