CAN ELECTRICITY USAGE SPARK ECONOMIC PROSPERITY? AN EVIDENCE FROM SAUDI ARABIA

نوع المستند : المقالة الأصلية

المؤلف

Ph.D. researcher in Economics, Lecturer at Department of Economics, College of applied studies and community services, King Saud University

المستخلص

This study investigates the causal relationship between electricity consumption and economic growth in Saudi Arabia using annual data from 1970 to 2010. Employing unit root and cointegration tests, followed by the estimation of a Vector Error Correction Model (VECM), we explore both short-run and long-run dynamics among GDP, electricity consumption (EC), and energy prices (EP). Diagnostic tests were applied to ensure the robustness of the VECM equations, and impulse response functions were used to analyze the reaction of variables to shocks over the study period.
Empirical findings indicate that GDP and EC are integrated of order one, while EP is integrated of order zero. The Johansen cointegration test confirms a long-run relationship among the variables with one cointegrating vector. Granger causality tests reveal a negative long-run causality from EC and EP to GDP, while short-run tests indicate bidirectional causality between EC and GDP, and between EC and EP.
The study highlights that energy conservation policies need to be implemented cautiously, as a reduction in electricity consumption negatively impacts economic growth in the long run. Policy implications suggest that Saudi Arabia should enhance energy efficiency, and shift towards alternative renewable energy sources to sustain economic growth. Overall, the results support the growth hypothesis, underscoring the significant role of electricity consumption in driving economic prosperity in Saudi Arabia.

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