Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia

This paper assesses the relationship among energy consumption, financial development, economic growth, industrialization and urbanization in Tunisia from 1971 to 2008. The autoregressive distributed lag bounds testing approach to cointegration and Granger causality tests is employed for the analysis. The result confirms the existence of long-run relationship among energy consumption, economic growth, financial development, industrialization and urbanization in Tunisia. Long-run bidirectional causalities are found between financial development and energy consumption, financial development and industrialization, and industrialization and energy consumption. Hence, sound and developed financial system that can attract investors, boost the stock market and improve the efficiency of economic activities should be encouraged in the country. Nevertheless, promoting industrialization and urbanization can never be left out from the process of development. We add light to policy makers with the role of financial development, industrialization and urbanization in the process of economic development. ► We find the existence of long-run relationship among variables. ► Financial development is positively related to energy consumption. ► Bidirectional causal relationship between financial development and energy consumption. ► Sound and developed financial system should be encouraged.