The energy-growth nexus: further evidence from disaggregate renewable energy sources

Abstract

The importance of renewable energy sources has grown substantially over the last ten years, mainly because they are seen as an important tool in mitigating climate change problems. Besides the environmental benefits, renewables have also been argued to contribute to economic activity and development. This study explores the relationship between economic growth and disaggregate renewable energy sources (hydropower, biomass, wind, and solar energies) in twenty OECD countries over the period 1993-2012. Applying recently developed panel time series techniques our analysis controls for unobserved heterogeneity and cross-section dependence between countries. The empirical findings suggest that there is no long-run relationship between economic growth and the different types of renewable energy. However, the results of short-run estimation reveal that electricity generation from biomass contributes to economic growth, while wind energy generation might have a negative impact on economic activity. The remaining two renewable energy categories (hydropower and solar energy) don’t appear to affect economic growth in the short run. The evidence of no interrelationship between the analyzed renewable energy sources and economic activity might be explained by their relatively low share in total energy production. Overall, our findings show that different renewables have diverse impacts on economic growth, therefore the energy-growth nexus line of research should look deeper at the disaggregated level in future investigations.