Exploring the Role of Investment, Economic Structure, and Urbanization on Energy Intensity in the MENA Nations

Abstract

This article examines energy intensity across a panel of six Middle East and North Africa (MENA) countries: Tunisia, Algeria, Morocco, Egypt, Jordan, Iran, Saudi Arabia, and the United Arab Emirates, spanning from 1980 to 2020. The analysis employs panel data econometrics, specifically heterogeneous panel cointegration tests developed by Pedroni, and utilizes the pooled mean group estimator proposed by Pesaran. The findings underscore that energy intensity, defined as the amount of energy consumed per unit of GDP, is significantly influenced by several key factors within MENA economies. Firstly, the level of investment plays a pivotal role in shaping energy intensity levels. Higher levels of investment typically correspond to increased industrial and infrastructural development, which in turn can lead to higher energy consumption relative to GDP. This relationship highlights the critical importance of investment policies and their implications for energy use efficiency. Secondly, the structure of economies within the MENA region is identified as a significant determinant of energy intensity. Countries with economies heavily reliant on energy-intensive sectors such as manufacturing, heavy industry, and resource extraction tend to exhibit higher energy intensity levels. This structural dependency underscores the challenges and opportunities associated with transitioning towards more energy-efficient economic models and diversifying energy sources. Additionally, urbanization rates emerge as another influential factor affecting energy intensity in MENA countries. Rapid urbanization often accompanies economic growth and industrialization, leading to increased energy demand for transportation, housing, and commercial activities. Managing urbanization processes through sustainable urban planning and infrastructure development becomes crucial in mitigating the rise in energy intensity and promoting efficient energy use practices. The study's methodological approach, utilizing panel data econometrics and cointegration tests, provides robust insights into the long-term dynamics of energy intensity across the MENA region. By incorporating country-specific characteristics and structural factors, the analysis offers a nuanced understanding of how varying economic contexts within MENA countries impact energy consumption patterns. The implications of these findings suggest that policies aimed at reducing energy intensity should focus on enhancing energy efficiency measures, promoting renewable energy adoption, and optimizing investment in sustainable infrastructure. Encouraging diversification away from energy-intensive sectors and fostering innovation in energy technologies are also critical strategies for achieving sustainable development goals and mitigating environmental impacts.