Dynamic linkages between transport energy and economic growth in Mauritius – implications for energy and climate policy

Abstract

The consumption of fossil fuels in the transport sector represents the fastest growing source of greenhouse gases in the world – a major source leading to global warming. While action is needed to restrict the use of fossil fuels, such a conservation policy relies on the relationship between energy and economic growth. The paper investigates the causal relationship between economic growth and transport energy in Mauritius for the period 1970-2010 using an aggregate production framework with real investment. Gasoline and diesel are analyzed separately. The bounds test cointegration approach is applied and the error correction representation concludes that there is a unidirectional Granger causality running from economic growth to transport energy in the long-run.  A rise in transport energy is, therefore, expected with economic progress. This result is attributed to discretionary mobility arising from high standard of living. However, bi-directional causality is found between transport energy and real investment. Restricting transport energy may therefore be detrimental to real investment and long-run growth in Mauritius.