Nexus between renewable energy and economic growth in G7 countries: New insight from nonlinear time series and panel cointegration analysis

Abstract

This study aims to investigate the impact of renewable energy consumption on the economic growth of G7 countries and explore the potential nonlinear relationship between the two variables. Initially, the NARDL model is employed to analyze the G7 countries, allowing for the control of nonlinear relationships and considering asymmetric effects. The findings of the NARDL model reveal an asymmetric long run cointegration relationship between renewable energy consumption and economic growth in Canada and the US, while other countries show different dynamics. Subsequently, a causal dynamic impact analysis is conducted to gain further insights into the relationship between renewable energy consumption and economic growth. In the next step, the advantage of panel data analysis is utilized to investigate the overall impact across all G7 countries. For this purpose, the study extends the NARDL model to the PNARDL (Panel Nonlinear Autoregressive Distributed Lag) model, which facilitates the control of asymmetric effects and nonlinearity in the panel data model. In this context, this study is one of the first studies to control the nonlinearity in panel data analysis. The results from the PNARDL model demonstrate that renewable energy has a positive long-term relationship with economic growth in G7 countries; however, this relationship is statistically insignificant.