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Long and Short-Run Linkages between Economic Growth, Energy Consumption and Co2 Emissions in Tunisia

Houssem Eddine Chebbi ()

No 485, Working Papers from Economic Research Forum

Abstract: The aim of this country specific study is to understand long and short-run linkages between economic growth, energy consumption and carbon emission using Tunisian data. These linkages were largely under considered and unanswered for policy makers in Tunisia and this empirical research attempts to present some findings to better integrate the environment into economic development decisions. Cointegration procedure is used to analyze time series relationships and error-correction terms are considered to estimate generalized impulse response functions and to test for the direction of Granger causality. Statistical findings of Johansen's cointegration analysis detect the presence of two cointegrating vectors. The first reveals a positive linkage between output and energy use and the second indicates that carbon emission and energy consumption are positively related in the long-run. In addition, results of the long-run relationships provide some evidence of “inefficient use” of energy in Tunisia, since environmental degradation tends to rise more rapidly than economic growth. Moreover, empirical results provide support for causality running from CO2 emissions growth to output growth, both in the short-run and the long-run. The results also provide some support of mutual causal and feedback relationship in the long-run. This pattern of development is consistent with the experiences of many developing countries. The results have important implications for policy makers in Tunisia who should be mindful that a persistent decline in environmental quality may exert negative externalities to the economy. Since statistical results confirm that an increase in pollution level induces economic expansion and in order not to adversely affect economic growth, more efforts must be made to encourage Tunisian industry to adopt technology that minimizes pollution, as a serious environmental policy. In Tunisia, the potential exists for the development of renewable energies and further efforts would require additional financing by policy makers and environmental awareness. In addition, the combined results of causality analysis and impulse response functions do not support the view that energy and output are neutral with respect to each other in Tunisia and the finding of a bi-directional causality between output growth and growth in energy consumption in the long-run implies that Tunisia is an energy dependent economy. The Tunisian economy may be vulnerable to energy shocks in which an energy shortage may adversely affect output growth. For this reason, it seems possible that energy conservation policies could be achieved through the rationalization of consumer and household demand and the reduction of Tunisian government consumption.

Date: 2009-04, Revised 2009-04
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