Renewable energy consumption, trade and inflation in MENA countries with augmented production function: Implications for the COP26

Abstract

This paper selects a multivariate panel data approach to understand and analyse the renewable energy augmented production function, with particular emphasis the importance of the association between capital, labour, output, the consumption of renewable energy, inflation, and trade for the eight Middle East and North Africa countries. Unlike previous studies which are not decisive on the channel by with renewable energy consumption affects trade and economic growth, we model renewable energy in the growth process as a primary element of technological development in the endogenous growth model. Utilising data between 2000 and 2016 and employing panel co-integration tests, the key findings demonstrate evidence of a longstanding association between the variables. Additionally, a bi-directional causality between real Gross Domestic Product and inflation was found. Significantly, the study found evidence of two uni-directional causalities running from inflation to renewable energy and from renewable energy to economic growth. The findings deliver an alternative macroeconomic interpretation for the influence of inflation on factor input substitution. The findings also emphasise the critical role that renewable energy plays in the production process and its comprehensive and positive economic effects.