Which clean energy contributes better for growth? – dynamic panel analysis of heterogeneous impacts of individual renewable sources on economic growth

Abstract

The impact of renewable energy on economic growth has been controversial and the possible reason for this is that renewable energy is aggregation of sources with heterogeneous characteristics and different countries have different portfolio of renewable sources depending on their climate condition and technology maturity. This study examines the relationship between renewable energy sources such as solar, wind and bio energy and economic growth in 89 countries. For methodology, this paper adopted Islam's growth equation and performed Dynamic Panel Analysis based on Arellano-Bond GMM methodology. In addition to whole sample analysis, a sub-group analysis is performed between OECD and non-OECD countries, and between energy-importing and energy-exporting countries to examine how the relationship is affected by country's capital accumulation, technology maturity, energy cost, and energy security. The result shows that individual sources have the U-shaped relationships with growth, but the turning points where negative relationship changes to positive vary for different sources. For sub-group analysis, the U-shaped relationship was significant only in OECD countries and energy-importing countries. This shows that high technology development and capital accumulation of OECD countries and high energy cost and vulnerability to international energy market of energy-importing countries makes renewable sources more beneficial to economic growth.

The Impact of Renewable and Non-Renewable Energy Consumption on Aggregate Output in Pakistan: Robust Evidence from the RALS Cointegration Test

“…The study suggests that using clean energy (renewable energy) has a U-shaped impact on production levels in the long-term and a positive impact in the short-term. Kim & Jeon (2022) have also confirmed that renewable energy sources have a U-shaped relationship with economic growth, meaning that renewable energy sources have both positive and negative effects on economic growth.…”