Do the Reduction of Traditional Energy Consumption and the Acceleration of the Energy Transition Bring Economic Benefits to South America?

Abstract

By considering a panel dataset between 1995 and 2019 including several countries in South America and methodologically using the fixed effect and GMM methods in first differences, the authors sought to empirically determine the relationship between traditional energy consumption, renewable energy consumption, and economic growth. The results show that the two main variables studied (fossil energy consumption and renewable energy consumption) are statistically significant and contribute to economic growth per capita in all nine South American countries studied. Furthermore, it should be noted that this significance persists in the four models discussed in this study, demonstrating a link between the positive economic impact of reducing traditional energy consumption and increasing renewable energy consumption in the South American countries studied. This article also contributes to the existing literature by highlighting the fundamental role of gross capital formation, labor force participation, and tertiary school enrollment in the economic growth of these countries. Two rather small effects on the aforementioned growth are the corruption perception index and domestic lending to the private sector by banks. This paper calls on policymakers to reconsider increasing energy production using renewable sources and to promote measures for its consumption.