The effect of renewable and non-renewable energy consumption on economic growth: Non-parametric evidence

Abstract

We employ a non-parametric modelling technique to examine the time-varying impact of renewable and non-renewable energy consumption on economic growth. The specific nonparametric method that we employ is the local linear dummy variable estimation (LLDVE) method, which we apply to OECD and non-OECD panels for the period 1990 to 2015. While previous studies employing parametric models have recognised the existence of non-linearities and instability in the relationship between renewable (and non-renewable) energy consumption and economic growth, the LLDVE method has the advantage that it does not make any assumptions about functional form and, hence, is better able to approximate the non-linear relationship. Our estimates suggest that non-renewable energy consumption exerts a positive and significant impact on economic growth across OECD nations with the coefficient function exhibiting an upward trajectory over time. The impact of renewable energy consumption on economic growth, however, is statistically indistinguishable from zero in these countries for most of the study period. Both renewable and non-renewable energy consumption promote economic growth in non-OECD countries, suggesting that developing countries may play an important role in the transition process to renewables despite constraints in technical progress.