Investigation of the relationship between renewable energy consumption and economic growth: Panel data analysis

In recent years, energy has become one of the determining factors of economic growth. Increasing environmental awareness and the need to reduce foreign dependency in energy have led countries to renewable energy sources. In this study, the effect of renewable energy consumption on economic growth was analyzed by using panel data analysis method on annual data of 16 countries that are the members of the G20 platform, for the 2000 - 2019 period. Breusch - Pagan Lagrange Multiplier test confirmed the presence of cross-sectional dependence in the series. In line with this result, for the determination of stationarity and cointegration relationship, a second-generation test that take the cross-sectional dependency into account was selected. The Westerlund (2007) panel cointegration test did not confirm the existence of a long-term relationship between the variables. In order to determine the short-term causal relationship between variables, Dumitrescu - Hurlin (2012) Granger causality test, which is used for heterogeneous panels, was applied by taking the first difference of the series. The results reveal the existence of a one-way causality relationship from renewable energy consumption to economic growth in the short run. Heterogeneity of the parameters was verified by applying the Delta Test; and this result shows that the use of the selected causality test is appropriate. In line with the Hausman Test results, the short-term relationship model was estimated using the Fixed Effects method. The coefficient obtained shows that, in the short term, a 1% change in the growth rate of renewable energy consumption will cause a change of 0.0401% on the growth rate of GDP. Based on this result, it can be suggested that countries increase their R&D studies and investment supports on renewable energy.