Driving industrial and economic growth in Central and Eastern Europe: The role of electricity infrastructure and renewable energy

Abstract

Balancing environmental objectives with energy security poses a significant challenge for Central and Eastern European (CEE) economies undergoing substantial energy sector reforms, particularly in the electricity sector. Apart from implementing market principles, improving electricity infrastructure and increasing the use of renewable energy sources (RES) are crucial for fostering industrial and overall economic growth. This study analyzes a panel of 15 Central and Eastern European economies (CEE) from 1995 to 2021. It employs various analytical techniques such as cross-sectional dependency testing, unit root testing, cointegration analysis, and the Augmented Mean Group (AMG) estimator. The results indicate that inefficient electricity infrastructure negatively impacts GDP and industry value-added (IVA) growth rates, regardless of control variables. Conversely, electricity generated from RES positively affects GDP and IVA growth rates in fully developed models. However, increased RES-generated electricity in models without control variables adversely affects IVA growth rates. These findings, coupled with the specific characteristics of CEE economies, lead to policy recommendations for sustainable economic and energy development.