Abstract
The main objective of this study is to empirically test whether there exist short run and long run causality between, Residential Electricity Consumption (REC), Industrial Electricity Consumption (IEC) and economic growth in Kingdom of Saudi Arabia (KSA). Time series data for this study spans from 1990 to 2019. The study adopts granger causality and co. Integration analysis to estimate a Vector Error Correction Model (VECM). Results from error correction model show that there exist long run co. integration relationship between targeted variables. In addition, VECM results indicates that, industrial electricity consumption is inelastic to the changes in electricity prices with respect to economic growth, while residential electricity consumption shows elastic relationship. Granger causality test indicates there is unidirectional relationship, running from economic growth to industrial electricity consumption, which lead to accept, proactive (conservative) hypothesis. In this case, energy conservative policy will have little or no effect on economic growth. Nevertheless, results proof acceptance of neutrality hypothesis in the case of residential electricity consumption and economic growth. The study therefore, recommends that in Saudi Arabia, policy makers should consider expanding their energy-mix alternatives, in order to cope with the future industrial electricity demand arising from increased economic growth.
Highlights
Kingdom of Saudi Arabia (KSA) is one of the largest exporter of petroleum and possess about 18% of the world petroleum reserves, Saudi Arabia oil and gas sector account for about 50% of the GDP, and about 85% exports earning (Maghrebi et al, 2018)
Integration test to determine whether the variables has short run and long run causal relationship, the model must satisfies some of basic requirements, firstly the series must stationary at first difference not in the level, in the above discussion, unit root test indicates that all three variables are stationary at first difference
This finding implies that in KSA economic growth derives industrial electricity consumption. This mean that KSA is growth-dependence industrial electricity consumption, and any indiscriminate energy-saving policy to promote economic growth, may result in adverse effects on industrial sector, policy makers should consider expanding their energy-mix options, in order to cope with the future demand arising from increased economic growth
Summary
KSA is one of the largest exporter of petroleum and possess about 18% of the world petroleum reserves, Saudi Arabia oil and gas sector account for about 50% of the GDP, and about 85% exports earning (Maghrebi et al, 2018). In late April 2016 KSA vesion2030 announced, based on three main pillars, they are a vibrant society, a thriving economy and an ambitious nation. A key goal of the thriving economy build on themes of diversified economy of less dependent on oil revenues, to achieve this goal and others, Saudi Arabia authority announced a set of parallel programs, which include the National Transformation Programs, which providing more information about the implication of energy sector (Fattouha and Amrita 2016). If Saudi Arabia efforts to transitions towards a more diverse and energy efficient-economy are unsuccessful, social wale fare
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