Energy Consumption and Industrial Production: Evidence from Tunisia at Both Aggregated and Disaggregated Levels

Abstract

Energy in the industrial sector is considered among the most important factors because of its direct relationship with economic development. This paper investigates the causality between energy consumption and industrial production in Tunisia for the period 1980–2007. The main contribution of the study is to empirically investigate the relation of industrial production and energy consumption at both aggregated and disaggregated levels in relation to oil, natural gas, and electricity. Applying the technique to Granger causality, in both the short and long-run, our results reveal that industrial production causes gas consumption, but the Granger causality running in any direction between oil consumption and industry GDP does not exist. On the other hand, the short-run Granger causality exists from industry GDP to total energy consumption, while the neutrality hypothesis is supported in the long run. Also, there is a unidirectional causality running from electricity consumption to industry GDP in the long run, but the neutrality hypothesis is supported in the short run. Then the article proposes some suggestions for improving the energy policy the industry sector and which can reduce the energy use and contribute to sustainable development in Tunisia. For example, to reduce energy consumption, suggestions propose to substitute the use of fossil fuels by clean energy and renewable energy. In addition, improving energy efficiency in Tunisia recommends the development of national strategies limiting the relocation of obsolete industries and polluting activities.