Causal relationship between renewable energy consumption and economic growth: comparison between developed and less-developed countries

This study aims to analyze and compare the long-run causal relationship between renewable energy consumption and economic growth for developed countries with that for less-developed countries to derive implications for long-term renewable energy policy. This study uses 1990-2010 data on 31 OECD countries (developed countries) and 49 non-OECD countries (less-developed countries) in the multivariate panel vector error correction model. The results show that the conservation hypothesis of a causal relationship between renewable energy consumption and economic growth is valid in the long run for OECD countries, and the feedback hypothesis, for non-OECD countries. This finding indicates that for developed countries, renewable energy has not played an important role in economic growth but has instead been growing by leaning on economic growth. By contrast, for less-developed countries, renewable energy has been playing an important role as a production input; similarly, economic growth has led to increased renewable energy consumption. As their economies grow, renewable energy consumption will increase in both developed countries and less-developed countries. However, policies to increase renewable energy consumption will encourage economic growth only in less-developed countries. Consequently, developed countries need to adopt a selection and concentration strategy, and less-developed countries need to adopt intensive promotion policies for renewable energy.