Analyzing Long-run Relationship between Energy Consumption and Economic Growth in the Kingdom of Bahrain

Assistant Professor, Faculty of Business Studies, Arab Open University, Bahrain

Abstract

Since the relation between energy consumption and economic growth is important to design effective energy policies that will promote economic growth, this study investigates the short run dynamics and causality among energy consumption, co2 emissions, oil prices and economic growth in Kingdom of Bahrain. To do so, annual data that covers the period from 1960 till 2015. Empirical work tests for unit root, co-integration relationship using Johansen (1988) approach and then estimate both long and short run dynamics using the vector error correction model (VECM). Results indicate that there is a long-run relationship between the suggested variables. Since economic growth has a predictive power to estimate the energy demand of Kingdom of Bahrain, it is recommended that the government of Bahrain and policy designers shed the light on energy efficiency strategies and carbon emissions reduction policy in the long run without impeding economic growth in order to move towards sustainability.