Renewable Energy Consumption and Economic Growth in OECD Countries: A Comparison between Developed and Developing Countries

Abstract

With climate change being more emergent than ever before, all governments are focusing on reducing greenhouse gas emissions. An important layer in doing so is to promote energy transition towards renewables. However, not every country has the incentive and resources to invest in renewables. Developing countries may care more about economic growth. Thus, a key question remains: does renewable energy consumption benefit economic growth, and, if so, does it benefit in the same way for countries at different development levels? This study examines the relationship between renewable energy consumption and economic growth in all OECD countries between 1990 and 2014. The correlation tests between renewable energy consumption and GDP in selected countries show that renewable energy consumption is positively correlated with economic growth only in developed countries. The regression result of the fixed effects model shows renewable energy consumption has a negative impact on GDP for OECD countries as a whole, but this negative effect is very small. From a policy perspective, this indicates that adopting renewables is not conducive for boosting immediate economic growth but it is important for environmental purposes and might eventually benefit economic growth in the long run.