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Energy Consumption, Financial Development and Growth: Evidence from Cointegration with unknown Structural breaks in Lebanon

Shahbaz, Muhammad and Abosedra, Salah and Sbia, Rashid (2013): Energy Consumption, Financial Development and Growth: Evidence from Cointegration with unknown Structural breaks in Lebanon.

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Abstract

This paper investigates the dynamic causal relationship between financial development, energy consumption and economic growth in Lebanon over the period 1993M1-2010M12.Our findings confirm the existence of cointegration among the variables. The results indicate that financial development and energy consumption, contribute to economic growth in Lebanon. The impact of energy consumption on economic growth is positive showing the significance of energy as a main stimulant of economic growth. Financial development is also found to play a vital role in enhancing economic growth. Economic growth and financial development also add in energy consumption. The study, therefore, recommends that in short run, policy makers should put more emphasis in developing strategies that would result in achieving higher mobilization of savings in order to boost Lebanese investors’ confidence and to also attract more foreign investment in Lebanon. Furthermore, desired financial policy to encounter the rising demand for energy by enhancing the process of capitalization of the energy sector is also very desirable. Our results further cautions of the use of policy tools geared towards restricting energy consumption in short run, something that is called for as part of national energy policy, as these may result in lower economic growth. Such conservation policies should be taken gradually and carefully as to not negatively impact the growth of the economy. However, in long run, the Lebanese government should shift its focus towards achieving higher economic growth, in order to boost its financial development and to sustain a steady flow of needed energy. In this regards, policymakers should put emphasis on the development of domestic energy resources to protect the country from any undesirable external energy shock given its extensive dependence on energy imports.

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