The causal relationship between renewable electricity generation and GDP growth: A study of energy sources

This paper examines the causal relationship between economic growth and electricity generation from renewable sources (biomass, geothermal, hydroelectric, solar, waste, and wind) across 20 OECD countries over 1990 to 2008. The results from a commonly used panel error correction model find (a) a bidirectional relationship between aggregate renewable generation and real GDP, (b) biomass, hydroelectricity, waste, and wind energy exhibit a positive long-run relationship with GDP, (c) hydroelectricity and waste generation exhibit a short-run positive bidirectional relationship with GDP growth, and (d) biomass, hydroelectric, and waste electricity generation have the largest impact on real GDP in the long-run. We extend the analysis to consider the possibility of structural breaks and cross-sectional dependence. Accounting for cross-sectional dependence, we find that in the short-run, increases in biomass and waste generation negatively affect GDP, while aggregate renewable and hydroelectricity increase GDP. Energy conservation policies will positively impact GDP, if the policies cause decreases in biomass or waste energy but increase hydroelectricity and wind energy.