Analysing short-run and long-run causality relationship among public spending, renewable energy consumption, non-renewable energy consumption and economic growth: Evidence from eight of South Mediterranean Countries

Abstract

This study aims to analyse the causal link in the short-run and long-run between economic growth, renewable energy, non-renewable energy and public spending in eight countries of the South Mediterranean Countries group during the 1980–2020 periods. Four steps are used: augmented Dickey-Fuller and Phillip Perron unit root tests to check the order of stationarity of variables, bound tests to verify the presence of cointegration, autoregressive distributed lag approach to check the effects of the dependent variables on the independent variable in short run and long run and finally the vector error correction model was used to detect the causal relationships among variables. The results approve the presence of cointegration between variables which confirm the existence of the long-run relationship. In addition, the Granger causality results show varied outcomes and the short-run causal relationships (unidirectional and bidirectional) exist in both countries of South Mediterranean Countries. These results remind the awareness of the South Mediterranean Countries government to revise their energy policy given the cost of energy consumption for importing countries. For the oil-exporting countries (Algeria and Egypt), the international energy market is an unstable market and highly dependent on external factors such as supply and demand and the stability of the world countries. So, it is good that the economies of these countries rely on new sources of energy such as renewable energy.