Modelling Economic Growth and Energy Consumption in MENA Countries: Cointergration and Causality Analysis

Abstract

DOI: 10.6007/IJARBSS/v6-i4/2106 URL: http://dx.doi.org/10.6007/IJARBSS/v6-i4/2106 Abstract: This paper investigates the causal relationship between energy consumption and economic growth for Algeria, Egypt, Iran, Jordan, Morocco, Saudi Arabia, Tunisia and United Arab Emirates from 1975 to 2011. To examine this relationship, we use approach of cointegration and Granger causality analysis. The cointegration test results show that there is no cointegration between the energy consumption and the economic growth in six of the eight countries. there is no a relationship between energy consumption and economic growth in Jordan; Saudi Arabia; Tunisia and United Arab Emirates. The granger causality indicate that one-way Granger causality from economic growth to energy consumption in Algeria and one-way strong Granger causalities from energy consumption to economic growth in Egypt; Morocco and Iran. The overall results indicate that there is no relationship between the energy consumption and the economic growth in most of the MENA countries. The topic of causal relationship between energy consumption and growth has been well studied in the energy economics literature. The relationship between energy consumption and economic growth is studied by many authors using various methodologies for different time periods and different countries. The directions that the causal relationship between the energy consumption and the economic growth could be categorized into four types: (1): Neutrality hypothesis: this hypothesis assumes the absence of a causal relationship between energy consumption and economic growth. Neutrality hypothesis states that energy conservation policies will have no effect on economic growth and economic growth will not stimulate energy consumption. (2) Conservation hypothesis: it is called unidirectional causality running from economic growth to energy consumption. This implies that energy conservation policies designed to reduce energy consumption and waste will have a little or no effect on economic growth. (3) Growth hypothesis: it implies that causality runs from energy consumption to economic growth. This hypothesis suggests that energy consumption plays an important role in