Energy and growth: A Cobb-Douglas comparative analysis of Egypt, Algeria and Nigeria

Abstract

This study explores the interplay between energy, capital, and labour as critical factors of production influencing economic growth in Algeria, Egypt, and Nigeria. The study determined a comparative analysis of the direction and impact of the energy-growth hypothesis on the economic growth of Algeria, Egypt, and Nigeria. Utilizing a modified Cobb-Douglas production model examined through Fully Modified Ordinary Least Squares (FMOLS) and other analytical techniques, the study analyzed time series data from 1990 to 2016 sourced from the World Development Index. The dependent variable analyzed in this study was GDP per capita, while the independent variables included capital (measured by gross capital formation), labour (represented by physically active individuals), and energy (indicated by electricity consumption) for Algeria, Egypt, and Nigeria, respectively. The findings revealed a significant positive relationship between capital and economic growth exclusively in Algeria, while no substantial effects were observed in Egypt and Nigeria. Conversely, labour consistently demonstrated a strong positive impact on economic development across all three countries, highlighting the labour-intensive nature of their economies. Electricity consumption was significantly linked to economic growth in Nigeria but showed no significant effects in Algeria and Egypt, indicating potential inefficiencies in their energy sectors. The study underscores the need for strategic physical capital investments, human capital development, and energy infrastructure to harness the full potential of these economies, thereby enhancing growth and sustainability in the region.