Economic growth, human capital, and energy consumption in Algeria: evidence from cointegrating polynomial regression and a simultaneous equations model

Abstract

Abstract This article aims to empirically analyze the direct and the indirect effects of human capital on energy consumption in Algeria, as well as to test the possible presence of the energy-environmental Kuznets curve (E-EKC) hypothesis, over the period 1970–2017, using cointegrating polynomial regressions (CPR) with break points, and a simultaneous equations model. The obtained results indicate that human capital directly reduces energy demand, and indirectly increases it through income and physical capital stock channels. However, the direct effect is higher than that of the indirect effect. Additionally, CPR results confirm a monotonic increasing relationship between energy use and real GDP per capita; therefore, there is no evidence of the E-EKC hypothesis. This means that increasing economic growth leads to a rise in energy consumption and, in turn, to an intensification of CO 2 emissions. The results also indicate that physical capital stock per capita, urban population ratio, and real GDP per capita are positively linked to energy use per capita. In that context, it may be appropriate to adapt the energy system to the growing demand, promoting greater use of renewable energies, if emissions growth is to be contained. Investment in education and improving the quality of human capital is a good way for Algeria to reduce energy consumption and protect the environment, without negatively impacting economic growth.