Biofuel, sustainability, and forest indicators' nexus in the panel generalized method of moments estimation: evidence from 12 developed and developing countries

Abstract

AbstractThis study examines the interrelationship between biofuel consumption and production and several national‐scale indicators of socioeconomic and environmental sustainability by using the functional form of the Solow growth model. Panel data ranging from 2000 to 2013 has been used for 12 distinct countries by employing the Panel Generalized Method of Moments (PGMM) technique. The results show that growth factors have a positive impact on biofuel consumption while environmental indicators increase along with the increasing use of biofuels. Potential habitant areas (represented by the forest indicators) are influenced by biofuel consumption. More specifically, as biofuels decrease the arable land in hectares, it also decreases the rate of forest depletion. The results show that GDP per unit of energy used and the amount of forest area are significantly correlated with higher biofuel production while the labor force participation rate significantly decreases biofuel production in the region. There is a significant and negative relationship between net forest depletion and biofuel production. The cause and effect relationship between the variables is estimated through the panel causality Wald exogeniety test. The results indicate a unidirectional causality running from GDP per capita to biofuel consumption and from biofuel consumption to fossil fuel energy consumption. While there is bidirectional causality between GDP per capita and biofuel production in the region, the results emphasize the role of biofuel consumption and production in devising strong policy options for escalating economic growth, a carbon‐free economy, and the preservation of biodiversity in a region. © 2016 Society of Chemical Industry and John Wiley & Sons, Ltd