Chapter 7 - The effect of energy transition on economic growth and consumption of nonrenewable energy sources in countries of Latin America and the Caribbean

Abstract

The effect of energy transition on economic growth and consumption of nonrenewable energy is investigated in this chapter. Data for five Mercosur countries are used for the period between 1981 and 2014, with PVAR methodology. The estimated model indicates that the consumption of renewable energy (a proxy for energy transition) increases economic growth and decreases the consumption of nonrenewable energy sources. Moreover, the results of Grande causality Wald test indicate that a bidirectional relationship exists between the consumption of energy (from both renewable and fossil sources) and economic growth, and suggest that economic growth in the countries assessed depends on fossil fuels. There is also evidence of substitutability in the consumption of energy from renewable and fossil sources in periods of drought, and that the process of globalisation has a positive indirect influence on the Mercosur countries’ consumption of renewable energy. The results obtained may be of use for local governments, not only as a basis for further examinations of the nexus between economic growth and energy consumption but also for the design of new policies aiming at increasing consumption of energy from renewable sources and promoting economic development.