Testing causality between energy consumption and economic growth in 15 Arab countries -

Abstract

Economic growth is a goal for each and every country, and countries nowadays are searching for various methods to develop their economies. Energy consumption could be an appropriate instrument; yet at the same time, energy is a significant source of greenhouse gases (GHG) emissions. This raises interest on the ongoing debate about economic growth and energy consumption nexus. Arab countries including Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, and United Arab Emirates were investigated over the years 1980-2010 on annual time series data to check for the direction of causality using Granger causality tests after employing unit root tests and cointegration tests when needed. Results of this study showed that there is no causation between energy consumption and economic growth in Algeria, Egypt, Libya, Morocco, Sudan, Syria, and the United Arab Emirates. However, there is a unidirectional causality running from economic growth to energy consumption in Bahrain and Tunisia supporting the conservation hypothesis. Nevertheless, it was found that energy consumption drives economic growth in Jordan, Oman, Qatar, and Saudi Arabia in line with the growth hypothesis. Besides, in those countries authorities must be cautious about implementing energy conservation policies since they would retard growth. Nonetheless, in Kuwait and Lebanon evidence of bidirectional causality was present in favor of the feedback hypothesis.