Foreign capital and energy consumption in Tunisia: Driving growth or enhancing sustainability?

This study examines the short- and long-term relationships between energy consumption and foreign capital inflows in Tunisia from 1971 to 2020, while also exploring the influence of economic growth, exports, and currency devaluation on energy consumption. Employing the ARDL bounds testing approach with structural breaks, the analysis reveals a stable long-term relationship among these variables. Causal analysis indicates bidirectional effects between foreign capital inflows and energy consumption, energy consumption and economic growth, and foreign capital inflows and economic growth, underscoring the strong interdependence among these factors. This research is particularly significant for Tunisia, where persistent energy deficits, currency fluctuations, and limited domestic investment constrain economic growth. Understanding how foreign capital inflows affect energy demand provides valuable insights for designing policies that attract sustainable investment while reducing energy dependency. The findings highlight that foreign capital inflows play a pivotal role in shaping Tunisia’s energy dynamics by supporting economic expansion, enhancing energy efficiency, and promoting sustainable consumption patterns. By integrating foreign investment strategies with energy efficiency objectives, policymakers can foster balanced economic development and strengthen Tunisia’s energy resilience. • Study explores short- and long-term links between energy use and capital inflows • ARDL model confirms stable long-run ties with growth, exports, and devaluation • Causality runs both ways between capital, energy use, and economic growth • Results stress aligning foreign capital with energy efficiency for sustainability