Analysing the Connection between Economic Growth, Conventional Energy, and Renewable Energy: A Comparative Analysis of the Caspian Countries

Abstract

The objective of this research paper is to apply a mathematical model to estimate and predict the economic growth of the Caspian countries in the period from 1995 to 2022. We use multiple regression by applying the OLS method to estimate the impact of global oil price, energy resource production per capita, trade, and renewable energy on GDP per capita. The mathematical approach uses fixed and random effects models to assess the overall impact of the independent variables on economic growth in this region and over the period analysed. This study also aims to investigate whether the explanatory variables are cointegrated in the long run; as such, we carry out several mathematical cointegration tests, namely the Pedroni and Johansen tests. The mathematical analysis is completed by the estimation of short- and long-run parameters using the stochastic VAR/VEC models, the impulse response function, and the causality test to assess economic growth in this region. This study’s main finding is that GDP per capita is increasingly influenced by its previous values, which is confirmed by considering lag 1 and lag 2. The results of the Granger causality tests identify several bidirectional relationships between GDP per capita and oil and gas production. These relationships are clearly positive evidence of the growth trend and progress of economic activity in the Caspian region. The practical implications of the study aim to promote and support the use of renewable energy sources. In this sense, policymakers in the Caspian countries should create favourable conditions for the transition to a green economy. An important aspect is the efforts of the government authorities to make their policies more environmentally friendly, as decarbonisation is a good practice in the current context of sustainability and related choices. As the Caspian countries are heavily dependent on conventional energy production, it is essential for them to increase their export earnings from energy resources via diversifying and strengthening new energy opportunities and partnerships.