Renewable energy, non-renewable energy, carbon dioxide emissions and economic growth in selected Mediterranean countries

Abstract

The aim of this paper is to analyze the causality relationship between economic growth, CO2 emissions and renewable and non-renewable electricity consumption, for a panel of 14 Mediterranean countries over the period 1980–2011. We use a generalized method of moments dynamic model to assess the impact of these three variables on growth and a panel vector error correction model to infer the direction of the causal relationship among the different variables. Empirical evidence shows that there is a bidirectional causal relationship between growth and electricity consumption (renewable and non-renewable) in the short-run and a unidirectional relationship running from renewable electricity consumption and economic growth in the long run. Renewable electricity consumption causes CO2 emissions in the long-run term and conversely in the short run. The variance decomposition result shown that the renewable electricity consumption is the most important factor to explain economic growth. The finding implies the importance of developing renewable energy in Mediterranean countries to enhance growth and limit pollutant emissions.