The long-run and short-run effects of oil price on energy consumption in Tunisia: Evidence from structural breaks analysis

ABSTRACT

Since its revolution in 2010, Tunisia has known a drastic decrease of its GDP reaching the lowest level during the two last decades. In this context, this paper examines the relationship between oil prices, GDP and energy consumption for Tunisia over the 1986–2014 period. The error-correction model (VECM) is employed to investigate the dynamic causality relationships among the variables. In the short run, we find unidirectional causality from oil price and energy consumption to GDP, but this does not indicate unidirectional causality from energy consumption and GDP to oil price. In the long run, our results suggest the existence of a bi-directional Granger causality between oil price, energy consumption, and GDP. We thus propose policy suggestions to solve the energy and sustainable development dilemma in Tunisia, such as encouraging the development of renewable energy, controlling energy consumption through more ambitious programs of energy efficiency and rational use of energy.

KEYWORDS:

• Oil prices
• energy consumption
• economic growth
• structural breaks

Notes

¹ In 1994, the volume of this levy amounted to 598000 (tone), which represents 15% of the total consumption of primary energy in the country.