Renewable and Non-Renewable Energy Consumption and Economic Growth in India

Abstract

The emergence of renewable energy as an alternative to non-renewable energy sources has garnered a great deal of attention in crafting of sustainable energy policies. Motivated by this, the present study investigates the impact of renewable and non-renewable energy use on economic growth in India within the energy consumption-growth framework over the period 1971-2012. A newly proposed Bayer and Hanck combined test and auto-regressive distributed lags bound testing approach to co-integration and vector error correction model for Granger casualty are used in a multivariate framework wherein trade openness and financial development are included as additional variables. Empirical evidence confirms the existence of a long run equilibrium relationship among the competing variables. The results indicate that non-renewable energy consumption has a long run significant positive effect on India's economic growth. In sharp contrast, the long run elasticity of economic growth with respect to renewable energy consumption is found to be statistically insignificant. In addition, it is shown that a bidirectional causality exists between non-renewable energy use and economic growth in both the long run and short run. Based on the findings, it is suggested that a non-renewable energy conversation policy may retard economic growth in India if initiated without due regard to renewable energy sources.