Revisiting renewable energy and economic growth-Does trade openness a matter?

Abstract

A significant obstacle to the scaling of renewable energy is the concern that increased consumption of renewable energy could have a negative impact on economic growth, due to the higher cost of renewable energy compared to fossil energy. To examine how exactly renewable energy consumption impacts economic growth, this study uses a non-linear panel threshold model with trade openness, financial development, and per capita income as threshold variables, to analyze the long-term non-linear relationship between renewable energy consumption and economic growth in 28 European Union countries from 2007 to 2017. The results show that (i) renewable energy consumption has significant threshold effect on economic growth. First, the effect of renewable energy consumption on economic growth is positive and significant if and only if it surpasses a certain threshold of trade openness. Second, a moderate financial development interval makes the consumption of renewable energy have a positive effect on economic growth, and if it is too low or too high, it will have a negative effect. Third, as for income level, the promoting effect of renewable energy consumption on economic growth is showing a "stepwise growth" feature, which means, when the income level surpasses its threshold value, the positive effect is strengthened. (ii) The results of the fixed-effects model show that, overall, renewable energy consumption promotes economic growth. (iii) The changes in the number of countries in different threshold intervals indicate that the positive impact of renewable energy consumption on economic growth in the EU is increasing.