Disaggregating Renewable and Nonrenewable Energy Consumption in the Energy Growth Nexis

Abstract

The environmentalists argue that climate change is a real threat, and therefore, they believe both developed and developing countries should shift their energy sources from fossil-based to renewable alternatives, including solar, wind, geothermal, hydropower, bio-oils, and ocean power to sustain economic growth. In this context, this study investigates the causal relationship between two sets of pairs—(i) renewable energy consumption and economic growth and (ii) nonrenewable energy consumption—and economic growth for 16 OECD countries for the 1971-2015 period. To fulfill this objective, the study employs a recently introduced frequency domain approach in both single-country form and multi-country (panel) form. The study indicates some dissimilarities on renewable and nonrenewable energy consumption and economic growth nexus in OECD countries. Although the results of single country frequency domain test mostly support neutrality hypothesis, multi-country frequency domain test finds strong evidence supporting bidirectional causality among these sets of pairs.