Energy Consumption and Economic Growth in Algeria: Cointegration and Causality Analysis

Abstract

This study investigates the energy consumption-growth nexus in Algeria. The causal relationship between the logarithm of per capita energy consumption (LPCEC) and the logarithm of per capita GDP (LPCGDP) during the 1965-2008 period is examined using the threshold cointegration and Granger causality tests. The estimation results indicate that the LPCEC and LPCGDP for Algeria are non cointegrated and that there is a uni-directional causality running from LPCGDP to LPCEC, but not vice versa. The research results strongly support the neoclassical perspective that energy consumption is not a limiting factor to economic growth in Algeria. Accordingly, an important policy implication resulting from this analysis is that government can pursue the conservation energy policies that aim at curtailing energy use for environmental friendly development purposes without creating severe effects on economic growth. The energy should be efficiently allocated into more productive sectors of the economy.Keywords: Energy consumption, Economic growth, Cointegration, Granger causality.JEL classifications : C32, O13, Q41.