Low-carbon energy strategies and economic growth in developed and developing economies: the case of energy efficiency and energy diversity.

Abstract

There has been growing interest in studying the relationship between energy strategies (energy efficiency and energy diversity) and economic growth to achieve the low-carbon economy goals in recent years. However, the available empirical evidence is scarce and provides contradictory results, limiting the policy implications of the existing findings. Therefore, this study aims to comprehensively examine the possible nexus between low-carbon energy strategies and economic growth for developed and developing economies. The empirical approach involves exploring the Granger causal relationships using a panel Granger (non) causality test and estimating the long-run effects by employing a panel autoregressive distributed lag modeling framework. The dataset covers panels of developed (28 countries) and developing (34 countries) economies over the period 1990-2017. Estimated results from the causality test reveal that in the economic growth-energy efficiency nexus, a unidirectional Granger causality exists for developed economies (running from economic growth to energy efficiency). In contrast, a bidirectional Granger causality is evident for developing economies. In the economic growth-energy diversity nexus, only unidirectional Granger causality exists for developed (running from economic growth to energy diversity) and developing (from energy diversity to economic growth) economies. The long-run coefficient estimates show that energy efficiency promotes economic growth for both developed and developing economies, but energy diversity promotes economic growth only for developing economies. Economic growth discourages energy efficiency for developed economies but encourages energy efficiency for developing economies. However, economic growth promotes energy diversity for both developed and developing economies. The findings of this study suggest that there is an immediate need to mitigate the adverse effect of economic growth on energy efficiency by focusing more on energy-savings behavior and practices for developed economies. Moreover, energy efficiency and energy diversity can be considered an alternate strategy to achieve higher economic growth with low carbon emissions for developing economies.