Determinants of Energy Intensity in Bahrain: An Econometric Analysis Using Canonical and Cointegrating Regression Approaches

Abstract

Background: Energy intensity, the ratio of energy consumption to economic output, is a key measure of energy productivity and efficiency. Bahrain remains heavily dependent on fossil fuels, with energy-intensive industries driving high consumption despite diversification efforts. As economies grow rapidly, understanding energy intensity is essential for developing policies that enhance energy efficiency without hampering economic growth. Hence, this study examines the determinants of energy intensity in Bahrain, assessing the impact of economic growth, industrial value-added, foreign direct investment (FDI), trade openness, energy prices, and government policies on energy consumption trends.Methods: The study covers data from 1980 to 2024, employing Canonical Regression Approach (CRA), Fully Modified Ordinary Least Squares (FMOLS), and Canonical Cointegration Regression (CCR) to analyze statistical relationships between energy intensity and key economic factors.Result: Canonical and cointegrating regression estimates indicate that economic growth increases energy intensity (e.g., a 1% GDP rise leads to a 0.6% increase in energy use via CCR), and FDI raises it due to investments in energy-intensive sectors. Conversely, industrial value-added (-0.68%) and trade openness (-0.64%) reduce energy intensity, reflecting efficiency gains, while government policies show minimal impact due to subsidies.Conclusion: To mitigate high energy intensity, Bahrain must strengthen energy policies, reform energy pricing, promote renewable energy investments, and encourage energy-efficient technologies. Enhanced regulatory oversight and stricter enforcement of existing policies are crucial for balancing economic growth and sustainability, providing insights relevant to Bahrain and other Gulf economies.