The Impact of Disaggregated Electricity Generation on Economic Growth: MENA Countries (2005-2014)

Abstract

This paper examines the impact of electricity generation on economic growth using data for a panel of 12 countries elected from MENA region over the period 2005-2014. The paper contributes to the literature in several ways. First, in contrast to the present literature which focuses on electricity consumption, this paper focuses on the impact of electricity generation on economic growth. This is because not all of the electricity that is generated is eventually consumed, due to dissemination losses, stolen power and the other so called “non-technical losses” which makes it necessary to examine the impact of electricity generation on economic growth. Second, we disaggregate the influence of total electricity generation on growth into renewable and non-renewable effects. The fact that the renewable electricity is gaining a great importance and the global care for its implementation makes it necessary to study its effect in the MENA region given the great potential of these sources in the region. Never the less, the effect of such sources of electricity on the economic growth is being investigated while at the same time using control variables like trade openness, financial development and CO2 emissions. Third, the study is different from previous studies in focusing on granger causality and/or cointegration by estimating the effect of electricity generation on growth using the System Generalized Method of Moments(GMM). GMM is being used given that electricity generation and many of the other regressors in the model may be jointly determined with GDP growth and thus be treated as endogenous variables a matter that can be handled by the GMM. Our results indicate a strong negative and statistically significant relationship between renewable and non-renewable electricity generation indicating the possibility of substitution between the two sources in these selected countries, yet with different impact on the economic growth.