The Dynamic Relationship between Energy Consumption, Foreign Capital Inflows and Currency Devaluation in Tunisia

Abstract

Abstract This paper aims at analyzing the short and long run relationships between energy consumption and foreign capital inflows. This relationship is investigated after studying the impact of the three main variables: the economic growth, the export and the currency devaluation on the energy consumption, for Tunisia during the period 1971–2020. The ARDL bound testing approach is used in the presence of structural breaks in order to test the different interrelationships. Our preliminary results show that a long-run relationship exists between the above-mentioned variables. The performed causal analysis led to conclude that a bidirectional effect exists between foreign capital inflows and energy consumption, between energy consumption and the economic growth, and between foreign capital inflows and the economic growth. Thus, the resulting suggestion of this paper concern the Tunisian energy industry and encourages the possible change within its policies stressing the importance of the role of foreign capital inflows in reducing the energy consumption in Tunisia.