Energy production and economic growth in Saudi Arabia: Dynamic causality

ABSTRACT

Energy helps stimulate economic growth and development. Energy production on a large scale indicates the level of economic prosperity of a nation. Studies maintain that countries with higher level of GDP per capita tend to have a higher energy production level per capita. Mixed evidences exist in literature on the direction of causality between energy in general and economic growth with varying policy recommendations. In the current study, the nexus between per capita energy production and economic growth is examined for Saudi Arabia. Utilizing the standard Granger causality in the context of an unrestricted Vector Autoregression model, a unidirectional causality from economic growth to energy production is found in Saudi Arabia. The result suggests an urgent need to vigorously pursue sustainable and efficient energy conservation policy in Saudi Arabia. The study concludes that Saudi Arabia requires a holistic approach to energy conservation with emphasis on renewable energy sources.

KEYWORDS:

• Economic growth
• energy conservation
• energy production
• Granger causality
• unrestricted Vector Autoregression (VAR) model