Energy consumption and economic growth in Egypt: A disaggregated causality analysis with structural breaks

Mesbah Sharaf

Region et Developpement, 2017, vol. 46, 59-76

Abstract: After the 2011 revolution, Egypt has experienced frequent electricity blackouts and a severe shortage of energy supplies. The government responded to the problem by reduc-ing the subsidy on energy for heavy industries, and household electricity use. Also, the government planned to introduce a smart card system that entails a certain quota of fuel for each registered car per month. It appeared to the public that the Egyptian government is attempting to adopt an energy conservation policy, to ration energy consumption and manage the deficit in energy supplies. Given that energy is an essential input for many economic activities, there is a concern that a reduction in energy consumption may damp-en the growth potentials of the Egyptian economy. This paper investigates the causal relationship between energy consumption and economic growth in Egypt during the peri-od 1980-2012, within a multivariate framework by including measures for capital and labor in the aggregate production function. Causality is tested using a modified version of the Granger causality test due to Toda and Yamamoto (1995). The analyses endogenously control for potential structural breaks in the time series when conducting the unit root tests. In addition to aggregate energy consumption, the analysis is also segregated by different components of energy use, including oil, electricity, natural gas, and coal to ac-count for any potential aggregation bias. Results show no causal relationship between total primary energy consumption and economic growth, supporting the neutrality hypothesis. When the analysis is stratified by energy type, a one-way positive causal relation running from economic growth to electricity and oil consumption is found which is consistent with the conservation hypothesis. The findings of this study provide empirical evidence that energy conservation policy has no negative effect on the growth prospects of the Egyptian economy in the long-run.

Keywords: Energy Consumption; Egypt (search for similar items in EconPapers)
JEL-codes: C32 F24 F43 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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