The effect of renewable energy consumption on economic growth in KSA: A bootstrap causality test

Abstract

The majority of studies analyzed show a positive and statistically significant impact of renewable energy consumption on economic growth. Nevertheless, some studies suggest a limited effect, while others find no statistically significant effect. Faced with this problem, we conducted a study aimed at analyzing the impact of renewable energy consumption on economic growth in the Kingdom of Saudi Arabia for the period 1990–2020. To determine the integration properties of the variables, we utilized the sharp and smooth structural breaks unit root test developed by Shahbaz, Omay and Roubaud (SOR). We also used the bootstrap approach of testing ARDL limits to examine the cointegration between variables. Using the VECM model, we studied the causal relationship between economic growth and its determinants. The results show, in the short and long run, the existence of a bidirectional causality between renewable energy consumption and economic growth (Feedback Hypothesis). Thus, there is a bidirectional relationship between GDP and capital and also between GDP and labor, in the long run. Therefore, an important policy implication resulting from this analysis is that renewable energy can be considered as an important factor for sustainable economic development in Saudi Arabia. The findings for Saudi Arabia may also be relevant for oil exporting countries to achieve efficiency and promote the renewable energy sector beyond oil.