Causal Relationship Between Renewable Energy, Economic Growth, And Environment

Abstract

This study aimed to identify the causal relationship between renewable energy economic growth and the environment in developing countries. The current study investigates the causal relationship along with several variables, including Energy consumption (EC), Consumer price index (CPI), Gross domestic product (GDP), and CO₂ emissions. All the data on variables were collected from World Development Indicators (WDI) for the time period 1990-2021. Auto Regressive Distributed Lag (ARDL) and Granger causality test were applied in the study. Empirical results confirmed the presence of long-run cointegration between variables. Results showed that all coefficients are statistically significant, and their signs are according to economic theory. In both models, the long-run estimated outcomes of ARDL showed that energy consumption and gross domestic product (GDP), and Gross capital formation (GCF) have a significant and positive effect on renewable energy in developing countries. Further, the Consumer Price Index and CO₂ emissions harm renewable energy in developing countries. The Granger causality test showed evidence of bidirectional causality among dependent and independent variables. Based on the results, the study recommended some policies that developing countries should implement to increase the growth rate and generate more sustainable energy and focus on efficient policies to lower the pollution level in developing countries.

Keywords: Renewable Energy; Economic Growth, CO₂ Emissions, ARDL Method, Granger Causality Test