The Impact of Urbanization on Energy Intensity in Saudi Arabia

Abstract

This paper investigates the long-term and causal relationship between energy intensity, real GDP per capita, urbanization and industrialization in Saudi Arabia over the period 1971–2012 using the breakpoint unit root tests developed by Perron (1989) and the autoregressive distributed lag (ARDL) model bounds testing to cointegration proposed by Pesaran et al. (2001) and employing a modified version of the Granger causality test proposed by Toda and Yamamoto (1995). Additionally, to test the robustness of the results, the fully modified ordinary least squares (OLS) regression, the dynamic OLS regression, and the Hansen test are used. Our results show that the variables are cointegrated when energy intensity is the dependent variable. It is also found that urbanization positively affects energy intensity in both the short term and the long term. Causality tests indicate that urbanization causes economic output that causes energy intensity in the long term. Our results do not support the urban compaction hypothesis where urban cities benefit from basic public services and economies of scale for public infrastructure. Therefore, measures that slow down the rapid urbanization process should be taken to reduce energy intensity in Saudi Arabia. In addition, reducing energy inefficiency in energy consumption should be a strategy to attain sustainable development in the near future in Saudi Arabia.

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