The impact of primary energy supply, effective capital and renewable energy on economic growth in the EU-27 countries. A dynamic panel GMM analysis

Abstract

Energy, just like any other factors of production, plays a vital role in boosting the economic growth of nations. Various researches have observed a significant positive effect of energy on economic growth, indicating that boosting energy sources will tend to raise the economic growth of nations. Due to this reason, the European Union (EU) needs to come up with a stable and reliable supply of energy to ensure high economic growth and stability in the prices. The current study seeks to examine the role of primary energy supply on economic growth in the EU. The study employs a panel data of 27 EU countries from 1990 to 2019. Dynamic Generalised Method of Moments which is robust over endogeneity, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) are employed. The current study differs from past studies in that it considers the interaction between energy and capital, “effective capital”, hence its main novelty. The study results show that carbon emissions, renewable energy, capital, effective capital and population size have a significant positive impact on GDP in the EU-27 countries. Primary energy supply is observed to exhibit a negative significant effect on GDP, whereas the results of DOLS technique gives a significant positive effect.