Texas Sun: A Fixed Effects Panel Approach to the Solar Energy-Economic Growth Nexus at the County Level

Abstract

Upon review of the empirical energy and renewable energy-economic growth nexus literature, it has been observed that these studies focus on the consumption of electricity generated by all renewables in aggregate at the state and national levels and its effects on Gross Domestic Product (GDP) or industrial production. Only a few analyze the supply of and investment in renewable energy and solar energy specifically, and none appear to have analyzed it at a level more granular than a state or province. It can be argued, therefore, that the different types of renewables likely have differing relationships with the economy at a more local, county level. This paper is to investigate the impact of solar energy production on total employment and income per capita at the county-level utilizing annual data over the period 2010-2019 for the United States state of Texas. The empirical model of the relationship between the growth of solar energy as proxied for by the quantity of electricity that generation facilities could produce, measured in megawatts (MW’s), and the change in total employment and income per capita over the 11-year period finds a statistically significant relationship between solar supply and both variables. However, in spite of statistical significance, the relationships are not practically meaningful given the low values of the related rates of change. This more substantiates the neutrality hypothesis. Sensitivity and comparative tests further elucidate on alternative measures of variables and approaches. Some considerations for future research are refinement and expansion of the dataset, inclusion of additional states and their counties, and employment of more advanced econometric methods to account for complexities in panel data and nuances in the variables’ relationships. Some policy implications based on the empirical findings research are perpetual extension of the solar investment tax credit and other private sector market catalyzing credits or instruments to encourage the uptake of new technological and operational innovations in the solar energy sector.