Economic growth and renewable energy consumption nexus in G7 countries: Symmetric and asymmetric causality analysis in frequency domain

Abstract

This paper examines the nexus between renewable energy consumption (REC) and Gross Domestic Product (GDP) in G7 countries. To this end, we analyse data from 1980 to 2020 employing Toda and Yamamoto (1995) time causality test, Lemmens et al. (2008) frequency causality test and Hatemi-J's (2012) asymmetric causality approach. The findings differ across countries and are as follows. The conservative hypothesis is validated for the US and Canada. Specifically, we find significant and positive causal effect from GDP to REC in the long-term horizons (periods greater than 15 years for the US and 7 years for Canada). The growth hypothesis is confirmed for Germany. Precisely, significant and positive causal impact is shown from REC to GDP in the long-run horizons (periods longer than 7 years). The neutrality hypothesis is supported for France, the UK, Italy and Japan as there is no significant causal link at any time horizon. This is likely because the clean energy consumption does not reach a threshold beyond which it will start to have considerable interaction with economic growth. This study provides policymakers a better understanding of the REC-economic growth nexus to formulate appropriate policies.