How do renewable energy, gross capital formation, and natural resource rent affect economic growth in G7 countries? Evidence from the novel GMM-PVAR approach.

Abstract

This paper is to examine the dynamic causal relationship between economic growth, renewable energy consumption, and CO2 with a broad perspective. The study is analyzed by dividing into two main parts. Growth and energy consumption in the first part, and the relationship between renewable energy and CO2 in the second part, within the framework of the basic hypotheses in the literature. On the other hand, as an observation group, the G7 economies were examined in the 1997-2019 period. According to PVAR regression estimates, if GDPPC increases by 1%, REN decreases by 0.81%, while CO2 increases by 0.71%. However, CO2 and REN do not appear to have any influence on growth. According to the causality estimates, a unidirectional causal relation from GDPPC to CO2 and REN was determined. In this case, the conservation hypothesis is valid. Considering the relation between CO2 and REN, no significant relation was found between the two variables in both regression and causality estimations. In this case, the neutrality hypothesis is valid between the two variables. It is seen that the diversity of energy sources or the investments made in them are inefficient. Our study offers a different perspective on energy resources and air pollution for the G7 economies.