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Does Financial Development Increase Energy Consumption? Role of Industrialization and Urbanization in Tunisia

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  • Muhammad, Shahbaz
  • Lean, Hooi Hooi

Abstract

This paper assesses the relationship among energy consumption, financial development, economic growth, industrialization and urbanization in Tunisia from 1971-2008. The autoregressive distributed lag bounds testing approach to cointegration and Granger causality tests are employed for the analysis. The result confirms the existence of long-run relationship between energy consumption, economic growth, financial development, industrialization and urbanization in Tunisia. Moreover, financial development, industrialization and urbanization are positively related to energy consumption especially in the long-run. Long-run bidirectional causal relationships are found between financial development and energy consumption, financial development and industrialization, and industrialization and energy consumption. Hence, sound and developed financial system which can attract investors, boost the stock market and improve the efficiency of economic activities should be encouraged in the country. Nevertheless, promoting industrialization and urbanization can never be left out from the process of development. On the other hand, the unidirectional causality from energy consumption to financial development implies that government should implement loose monetary policy which will stimulates investment activities and enhances economic growth and hence the energy consumption.

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  • Muhammad, Shahbaz & Lean, Hooi Hooi, 2011. "Does Financial Development Increase Energy Consumption? Role of Industrialization and Urbanization in Tunisia," MPRA Paper 33194, University Library of Munich, Germany, revised 06 Sep 2011.
    • Handle: RePEc:pra:mprapa:33194
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    More about this item

    Keywords

    Energy Consumption; Financial Development; Economic Growth;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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