The Links between Energy Consumption, Financial Development, and Economic Growth in Lebanon: Evidence from Cointegration with Unknown Structural Breaks

Abstract

We investigate the relation between financial development, energy consumption, and economic growth in the economy of Lebanon over the period 2000M2–2010M12. Our findings confirm the existence of cointegration among the variables. The results indicate that financial development and energy consumption contribute to economic growth in Lebanon. The impact of energy consumption on economic growth is positive showing the significance of energy as a main stimulant of economic growth. Financial development is also found to play a vital role in enhancing economic growth. Financial development and economic growth also result in further increase in energy consumption. We offer some policy implications specific to Lebanon considering the recent discovery of large oil and gas reserves in the country and the historical importance of its banking sector which remains a center of Lebanon’s service-oriented economy.