Re-Examining Energy-Growth Nexus in 27 Selected South Countries: Heterogeneous Panel Model

Abstract

This paper examines the link between energy consumption and economic growth using a panel data sample of 27 Southern countries observed over the period 2002-2020. To capture long-run effects, we used appropriate panel data econometric techniques in the presence of cross-sectional dependence and slope heterogeneity, while Dumitrescu and Hurlin (2012) causality tests examined short-run causal effects. Our results show that (i) in the long run, energy consumption has a negative and significant effect on economic growth in all countries, while other variables have a positive and significant effect, except institutional quality form, which is not significant both in short and long run on economic growth. (ii) in the short run, all variables have a positive and significant effect on economic and, (iii) causality tests confirm the feedback hypothesis between energy consumption and growth. The study concludes by calling on policymakers to strengthen institutional qualities and adopt financial and energy efficiency policies that could sustain economic development in the long run.