Abstract
This study investigates the link between energy consumption, financial development and growth in Tunisia. The causal relationship between energy consumption growth (ENC), per capita GDP growth (GDP) and credit to the private sector as a proxy of financial development (CSPV) during the 1972 to 2010 period was examined using the cointegration and vector error correction models for Granger causality tests. The main empirical results show that in the long term there is bidirectional causality between ENC and GDP, as well as a unidirectional causality going of ENC to CSPV. On the short term, only the variable ENC causes CSPV which demonstrates the interest to include this variable in the relation energy-growth. The research results strongly support the neoclassical perspective that energy consumption is not a limiting factor to economic growth in Tunisia. Accordingly, an important policy implication resulting from this analysis is that government can pursue the conservation energy policies that aim at curtailing energy use for environmental friendly development purposes without creating severe effects on economic growth. In future, the energy should be efficiently allocated into more productive sectors of the economy. Key words: Energy, financial development, growth, cointegration.
Highlights
The relationship between energy consumption and economic growth has been one of the most widely investigated in the economic literature in the three last decades
This study investigates the link between energy consumption, financial development and growth in Tunisia
The determinants of the energy consumption and the link energy-economic growth are the main issues discussed in this work
Summary
The relationship between energy consumption and economic growth has been one of the most widely investigated in the economic literature in the three last decades. Retards or is neutral to economic activities has motivated curiosity and interest among economists and policy analysts to investigate the direction of causality between energy consumption and economic variables. The direction of causality between energy consumption and economic growth has significant policy implications for countries, enjoying implicit generous subsidies (low domestic prices) for energy. For example, there exists unidirectional Granger causality running from growth to energy, it may be implied that energy conservation policies such as phasing out energy subsidies or elimination of energy price distortions have little adverse or no effects on economic growth. If unidirectional causality runs from energy consumption to growth, reducing energy consumption, for example through bringing domestic energy prices in line with market prices, could lead to a fall in income. No causality in either direction would indicate that policies for increasing energy consumption do not affect economic growth
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