Renewable and Non-Renewable Energy Consumption on Economic Growth: Evidence from Asymmetric Analysis across Countries Connected to Eastern Africa Power Pool

Abstract

Though various studies have examined the energy-growth nexus, the non-linear asymmetry relationship between economic growth and energy use has received little attention. In order to investigate the stratified asymmetric relationship between total, renewable, and nonrenewable energy consumption and economic growth in nine Eastern African nations connected via the Eastern Africa power pool (EAPP) and power trade (EAPT), this study used common correlated effect means group (CCEMG), nonlinear Autoregressive Distributed Lags (NARDL) approaches, and asymmetric causality tests from both a country and regional perspective. The time span is 1980 to 2017. The results from cross-sectional dependence confirms the existence of cross-sectionally dependence, findings from unit root and westerlund cointegration agreed the presence of long-run relations between variables and support the use of NARDL. CCEMG results reveal that energy in total contributes to growth, while nonrenewable energy reduces economic growth across the panel of selected countries. Nonlinear results from positive and negative shocks to energy as total, renewable and nonrenewable energy use have mixed nonlinear effect (positive and negative) on economic growth in long-run across the selected countries, while symmetric effect was unavailable in several countries. Bi-directional causation was noted between growth and all considered energy types at the panel of seven countries, and between energy as total and nonrenewable and growth in Ethiopia and Sudan, while all of the examined nations showed a strong one-way causal relationship between growth and renewable and nonrenewable energy, Rwanda showed a neutral relationship between growth and energy sources. For sustainable economic growth, policymakers, investors, and government officials may use this information to help them develop energy policies that promote renewable energy output while reducing reliance on nonrenewable energy in the region.