Renewable and non-renewable energy consumption and economic growth: Evidence from MENA Net Oil Importing Countries

Kahia, Montassar and Ben Aissa, Mohamed Safouane (2014): Renewable and non-renewable energy consumption and economic growth: Evidence from MENA Net Oil Importing Countries. Published in:

Abstract

In this paper, we use panel cointegration techniques to explore the relationship between renewable and non-renewable energy consumption and economic growth in a sample of 11 MENA Net Oil Importing Countries covering the period 1980–2012. The Pedroni (1999, 2004), Kao(1999) as well as Westerlund(2007) panel cointegration tests indicate that there is a long-run equilibrium relationship between real GDP, renewable energy consumption, non-renewable energy consumption, real gross fixed capital formation, and the labor force with elasticities estimated positive and statistically significant in the long-run. Results from panel error correction model expose that there is confirmation of bidirectional causality between renewable energy consumption and economic growth, between non-renewable energy consumption and economic growth as well as between renewable and non-renewable energy consumption that is evidence of their substitutability and interdependence in both the short and long-run supporting the feedback hypothesis. We suggest that Governments should implement policies that promote the development of renewable energy sector in order to realize economies of scale such as tax credits for renewable energy production, installation rebate for renewable energy systems as well as the establishment of markets for renewable energy certificates.

• Item Type: MPRA Paper
• Language: English
• Keywords: Renewable and non-renewable energy consumption, Growth, Panel cointegration, MENA Net Oil Importing Countries
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C31 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions ; Social Interaction Models; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy

References

Akinlo, A.E., 2008. Energy consumption and economic growth: evidence from 11 Sub-Sahara African countries. Energy Econ. 30 (5), 2391–2400.

Apergis, N., Payne, J.E., 2009a. Energy consumption and economic growth in Central America: evidence from a panel cointegration and error correction model. Energy Econ. 31, 211–216.

Apergis, N., Payne, J.E., 2009b. Energy consumption and economic growth: evidence from the Commonwealth of Independent States. Energy Econ. 31 (5), 641–647.

Apergis, N., Payne, J.E., 2010a. The emissions, energy consumption, and growth nexus: evidence from the commonwealth of independent states. Energy Policy 38 (1), 650–655.

Apergis, N., Payne, J.E., 2010b. Energy consumption and growth in South America: evidence from a panel error correction model. Energy Econ. 32 (6), 1421–1426.

Apergis, N., Payne, J.E., 2010c. Renewable energy consumption and economic growth: evidence from a panel of OECD countries. Energy Policy 38 (1), 656–660.

Apergis, N., Payne, J.E., 2010d. Renewable energy consumption and growth in Eurasia. Energy Econ. 32 (6), 1392–1397.

Apergis, N., Payne, J.E., 2011a. The renewable energy consumption-growth nexus in Central America. Appl. Energy 88 (1), 343–347.

Apergis, Nicholas & Payne, James E., 2011b. Renewable and non-renewable electricity consumption–growth nexus: Evidence from emerging market economies, Applied Energy, Elsevier, vol. 88(12), pages 5226-5230.

Apergis, Nicholas & Payne, James E., 2012. Renewable and non-renewable energy consumption-growth nexus: Evidence from a panel error correction model, Energy Economics, Elsevier, vol. 34(3), pages 733-738.

Apergis, N., Payne, J.E., Menyah, K., Wolde-Rufael, Y., 2010. On the causal dynamics between emissions, nuclear energy, renewable energy, and economic growth. Ecol. Econ. 69 (11), 2255–2260.

Banerjee, A., 1999. Panel data unit roots and cointegration: an overview. Oxford Bulletin of Economics and Statistics S1 (61), 607–629.

Belke, A., Dobnik, F., Dreger, C., 2011. Energy consumption and economic growth: new insights into the cointegration relationship. Energy Econ. 33 (5), 782–789.

Belloumi, M., 2009. Energy consumption and GDP in Tunisia: cointegration and causality analysis. Energy Policy 37 (7), 2745–2753.

Breitung, J., 2000. The Local Power of Some Unit Root Tests for Panel Data, Advances in Econometrics, 15, Nonstationary Panels, Panel Cointegration, and Dynamic Panels, Amsterdam: JAI Press, p. 161–178.

Breitung, J. and Pesaran, M., 2005. Unit roots and cointegration in panels, Bundesbank Discussion Paper No. 42.

Bowden, N., Payne, J.E., 2009. The causal relationship between U.S. energy consumption and real output: a disaggregated analysis. J. Policy Model. 31 (2), 180–188.

Bowden, N., Payne, J.E., 2010. Sectoral analysis of the causal relationship between renewable and non-renewable energy consumption and real output in the U.S. Energy Sources Part B 5, 400–408.

Chang, C.P, Lee, C.C., 2008. Energy consumption and economic growth in Asian economies: a more comprehensive analysis using panel data. Resource and Energy Economics 30, 50–65.

Chien, T., Hu, J.L., 2007. Renewable energy and macroeconomic efficiency of OECD and non-OECD economies. Energy Policy 35 (7), 3606–3615.

Chontanawat, J., Hunt, L.C., Pierse, R., 2008. Does energy consumption cause economic growth? Evidence from a systematic study of over 100 countries. J. Policy Model. 30 (2), 209–220.

Eggoh, J.C., Bangaké, C., Christophe, R., 2011. Energy consumption and economic growth revisited in African Countries. Energy Policy 39 (11), 7408–7421.

Engle, R.F., Granger, C.W.J., 1987. Cointegration and error correction: representation, estimation, and testing. Econometrica 55, 251–276.

Ernst & Young. Renewable energy country attractiveness index. Issue 41, June 2014. Accessed from: http://www.ey.com/UK/en/Industries/Cleantech/Renewable-Energy-Country-Attractiveness-Index.

Ewing, B.T., Sari, R., Soytas, U., 2007. Disaggregate energy consumption and industrial output in the United States. Energy Policy 35, 1274–1281.

Fang, Y., 2011. Economic welfare impacts from renewable energy consumption: the China experience. Renewable Sustainable Energy Rev. 15, 5120–5128.

Fuinhas, J.A., Marques, A.C., 2011. Energy consumption and economic growth nexus in Portugal, Italy, Greece, Spain and Turkey: an ARDL bounds test approach (1965–2009). Energy Econ. http://dx.doi.org/10.1016/j.eneco.2011.10.003.

Hadri, K., 2000. Testing for Stationarity in Heterogeneous Panel Data, Econometric Journal, 3, p. 148–161.

http://www.leconomistemaghrebin.com/2013/01/05/promotion-des-energies-renouvelables-et-de-lefficacite-energetique-en-tunisie/#sthash.6riYaQx6.dpuf.

Huang, B.N., Hwang, M.J., Yang, C.W., 2008. Causal relationship between energy consumption and GDP growth revisited: a dynamic panel data approach. Ecol. Econ. 67 (1), 41–54.

International Energy Outlook, 2013. U.S. Energy Information Administration. U.S. Department of Energy, Washington, DC.

Im, K.S., M.H. Pesaran and Y. Shin, 2003. Testing for unit roots in heterogeneous panels. J. Econometrics, 115: 53-74.

Kao, C., 1999. Spurious Regression and Residual-Based Tests for Cointegration in Panel Data, Journal of Econometrics 90, 1-44.

Kaplan, M., Ozturk, I., Kalyoncu, H., 2011. Energy consumption and economic growth in turkey: cointegration and causality analysis. Rom. J. Econ. Forecast. 14 (2), 31–41.

Kaygusuz, K., 2007. Energy for sustainable development: key issues and challenges. Energy Sources, Part B: Economics, Planning, and Policy 2, 73–83.

Kaygusuz, K., Yuksek, O., Sari, A., 2007. Renewable energy sources in the European Union: markets and capacity. Energy Sources, Part B: Economics, Planning, and Policy 2, 19–29.

Lee, C.C., 2006. The causality relationship between energy consumption and GDP in G-11 countries revisited. Energy Policy 34 (9), 1086–1093.

Levin, A., Lin, C.F., Chu, C., 2002. Unit root tests in panel data: asymptotic and finite sample properties. Journal of Econometrics 108, 1–24.

Lise,W., Montfort, K., 2007. Energy consumption and GDP in Turkey: is there a co[hyphen (true graphic)]integration relationship? Energy Econ. 29 (6), 1166–1178.

Maddala, G.S.,Wu, S., 1999. A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics 61, 631–652.

Menegaki, A.N., 2011. Growth and renewable energy in Europe: a random effect model with evidence for neutrality hypothesis. Energy Econ. 33 (2), 257–263.

Morocco GDP Growth Rate Accessed online from: http://www.tradingeconomics.com/morocco/gdp-growth.

Narayan, P.K., Smyth, R., 2008. Energy consumption and real GDP in G7 countries: new evidence from panel cointegration with structural breaks. Energy Econ., 30 (5). Elsevier, pp. 2331–2341.

Ozturk, I., 2010. A literature survey on energy-growth nexus. Energy Policy 38 (1), 340–349.

Ozturk, I., Aslan, A., Kalyoncu, H., 2010. Energy consumption and economic growth relationship: evidence from panel data for low and middle income countries. Energy Policy 38 (8), 4422–4428.

Payne, J.E., 2009. On the dynamics of energy consumption and output in the US. Appl. Energy 86 (4), 575–577.

Payne, J.E., 2010. Survey of the international evidence on the causal relationship between energy consumption and growth. J. Econ. Stud. 37 (1), 53–95.

Payne, J.E., 2011. On biomass energy consumption and real output in the US. Energy Sources Part B 6 (1), 47–52.

Pedroni, P., 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61, 653–670.

Pedroni, P., 2000. Fully modified OLS for heterogeneous cointegrated panels. Advanced in Econometrics 15, 93–130.

Pedroni, P., 2004. Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the ppp hypothesis: new results. Econometric Theory 20, 597–627.

Persyn, D. and Westerlund, J., 2008. Error-correction–based cointegration tests for panel data, Stata Journal, 8, 232–241.

Pesaran, M. H., 2007. A simple panel unit root test in the presence of cross section dependence, Journal of Applied Econometrics, 22, 265–312.

Pesaran, H.M., Shin, Y., Smith, R.P., 1999. Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association 94, 621–634.

Sadorsky, P., 2009a. Renewable energy consumption and income in emerging economies. Energy Policy 37 (10), 4021–4028.

Sadorsky, P. 2009b.Renewable Energy Consumption, CO2 Emissions and Oil prices in the G7 Countries, Energy Economics, 31, 3, 456-462.

Sharma, S.S., 2010.The relationship between energy and economic growth: Empirical evidence from 66 countries. Applied Energy, Volume 87, Issue 11, Pages 3565–3574.

Squalli, J., 2007. Electricity consumption and economic growth: bounds and causality analyses of OPEC members. Energy Economics 29, 1192–1205.

Sovacool, B.K., 2009. Rejecting renewables: the socio-technical impediments to renewable electricity in the United States. Energy Policy 37, 4500–4513.

Soytas, U., Sari, R., 2003. Energy consumption and GDP: causality relationship in G-7 countries and emerging markets. Energy Econ. 25 (1), 33–37.

Soytas, U., Sari, R., 2006. Energy consumption and income in G-7 countries. J. Policy Model. 28 (7), 739–750.

Soytas, U., Sari, R., Ewing, B.T., 2007. Energy consumption, income, and carbon emissions in the United States. Ecol. Econ. 62 (3–4), 482–489.

Tiwari, A.K., 2011a. A structural VAR analysis of renewable energy consumption, real GDP and CO2 emissions: evidence from India. Econ. Bull. 31 (2), 1793–1806.

Tiwari, A.K., 2011b. Comparative performance of renewable and nonrenewable energy source on economic growth and CO2 emissions of Europe and Eurasian countries: a PVAR approach. Econ. Bull. 31 (3), 2356–2372.

The World Bank Group, 2013. Energy in MENA. Washington. Available from: http://siteresources.worldbank.org/INTMENA/Resources/Energy_Brief_Fall2010.pdf.

The Penn World Table (PWT8.0). Accessed from: http://www.ggdc.net/pwt.

Tugcu, Can Tansel & Ozturk, Ilhan & Aslan, Alper, 2012. Renewable and non-renewable energy consumption and economic growth relationship revisited: Evidence from G7 countries, Energy Economics, Elsevier, vol. 34(6), pages 1942-1950.

Usama Al-M., Hassan G. F., Janice Y.M. Lee, 2014.Electricity consumption from renewable and non-renewable sources and economic growth: Evidence from Latin American countries. Renewable and Sustainable Energy Reviews, Volume 30, February 2014, Pages 290-298.

U.S. Energy Information Administration. International Energy Statistics. Accessed from: http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=6&pid=29&aid=2.

U.S. Energy Information Administration. MIDDLE EAST & NORTH AFRICA. Accessed from: http://www.eia.gov/countries/mena/.

Westerlund, J., 2007. Testing for error correction in panel data, Oxford Bulletin of Economics and Statistics, 69, 709–748.

World Bank, 2013. World Development Indicators. Accessed from: http://www. worldbank.org/data/onlinedatabases/onlinedatabases.html.