Exploring the Causal Nexus between Energy Consumption, Environmental Pollution and Economic Growth: Empirical Evidence from Central and Eastern Europe

Abstract

Energy is considered a critical driver of social and economic progress, but the use of conventional energy from fossil fuel sources is viewed as the main contributor to greenhouse gases that cause global warming. To overcome such issues, renewable energy technologies appeared as a viable substitute which lessens pollutant emissions and protect the environment. This paper investigates the impact of energy consumption and environmental pollution on economic growth, also exploring the causal associations, for a sample of 11 Central and Eastern European states over the period 2000 to 2016. The outcomes of panel data regressions indicate evidence of a non-linear link between renewable energy (both overall, as well as in form of hydro and wind power) and gross domestic product per capita growth. The non-linear relations were also established in case of alternative & nuclear energy and fossil fuel energy consumption. However, the influence of non-renewable energy on growth was not statistically significant, whereas greenhouse gases emissions exhibited mostly a positive impact on economic growth. The robustness checks by panel fully modified and dynamic ordinary least squares showed almost the similar pattern of results. The results of Granger causalities within six panel vector error correction models supported in the short-run the conservation hypothesis for renewable energy (overall), but also for hydro power and solid biofuels, excluding charcoal. In the long-run the growth hypothesis was established for renewable energy (overall), along with wind power, solid biofuels, excluding charcoal and geothermal energy. The findings imply that CEECs policy makers should consider imperative investments in the development of renewable energy sector.