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Testing for VECM Granger Causality and Cointegration Between Economic Growth and Renewable Energy: Evidence from MENA Net Energy Importing Countries

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  • Badry Hechmy

    (University of Tunis el Manar)

Abstract

This paper employs several techniques to study the relationship between renewable energy consumption and economic growth in Net Energy Importing Countries in the Middle East and North Africa (MENA-NEICs) during the period from 2001 to 2015. Panel cointegration test shows that there is a long-term cointegration relationship between those variables. However, the Granger causality test in VECM shows that this relationship is bidirectional in the short and long term. Thus, MENA-NEICs must encourage the deployment of renewable energies to the detriment of fossil fuels. To this end, an investment incentive is suggested in this sector, which will be medium and long-term market-based. In the short term, a transitional stage of a mixed and dynamic approach consisting of a program of partial subsidies for renewable energy production and partial adjustment of fossil fuel prices that is progressively moving towards a final stage where subsidies to energy will be completely removed is suggested. In this way, these countries can make the trade-off between fiscal sustainability and political stability.

Suggested Citation

  • Badry Hechmy, 2019. "Testing for VECM Granger Causality and Cointegration Between Economic Growth and Renewable Energy: Evidence from MENA Net Energy Importing Countries," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 4(2), pages 111-131, December.
    • Handle: RePEc:sgh:erfinj:v:4:y:2019:i:2:p:111-131
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    More about this item

    Keywords

    renewable energy; economic growth; cointegration test; causality test; VECM; MENA-NEIC;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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