Innovations and renewables in the Nordic countries: A panel causality approach

Abstract

Most studies on the relationship between technological innovations and renewable energy consumption have focused on the role of technological innovations in the link between energy consumption and economic growth, with no deep analysis of direct causality between renewable energy and technological innovation. This study examines the direct causal relationship between technological innovation and renewables in the four Nordic countries by using the bootstrap panel Granger causality approach that accounts for both cross-sectional dependence and slope heterogeneity across countries. The results show a unidirectional causality running from technological innovations to renewable energy in Denmark and Norway, and a unidirectional causality running from renewables to innovations in Sweden and Finland. The main reasons of the divergent results could be energy mix, role of nuclear energy, the different economic structures, and role of policies. The policy implications are that technological innovations play an effective role in renewable energy consumption and renewable energy itself spurs innovations. Thus, speeding up the transition to renewable energy requires investment in technological innovations.