Exploring non-linear causal nexus between economic growth and energy consumption across various R&D regimes: Cross-country evidence from a PSTR model

Abstract

PurposeThis study endeavors to elucidate the divergent conclusions encountered in empirical research regarding the interplay of Economic Growth (EG) and Energy Consumption (EC). Design/methodology/approachFor this purpose, we employ the Panel Smooth Threshold Regression (PSTR) model to intricately examine the non-linear impacts of independent variables on EC and EG within a dataset encompassing 46 countries over the period from 1996 to 2021. FindingsThe outcomes of our investigation can be summarized as follows: First, the findings underscore the positive impact of the logarithm of net capital formation on EG. This impact is particularly pronounced at low levels of Research and Development (R&D), gradually waning beyond a certain threshold. Second, the ratio of capital to labor exhibits a negative influence on EC at lower R&D levels. Notably, these detrimental impacts become more pronounced as R&D levels increase. Third, trade openness contributes positively to EG, particularly evident at low R&D levels. However, with increasing R&D levels, the incremental benefits from trade diminish. Finally, our findings lend support to the feedback hypothesis. Nevertheless, the impact of R&D expenditures in countries moderates these positive effects. Practical implicationsPolicymakers should strategically balance resource allocation between capital formation and research endeavors, considering diminishing returns at elevated levels of R&D spending, to ensure sustained EG.