The Interconnectedness of Energy Consumption with Economic Growth: A Granger Causality Analysis

Abstract

In considering today's energy challenges, the link between the usage of renewable and non-renewable energy sources and economic growth has gained substantial policy attention. This research examines the complex relationship between these three variables to understand how non-renewable energy consumption and renewable energy consumption interact and what that means for economic growth. This study uses the Granger causality approach to explore the relationships between non-renewable energy consumption, renewable energy consumption, and economic development. It draws on a comprehensive dataset from the Word Bank database, including 152 nations from 1990 to 2019. The analysis is further disaggregated by four subgroups of countries; least developed, developed, transitional economies and developing countries. The result of this study provides valuable empirical evidence of uni-directional causality running from renewable energy consumption to economic growth and non-renewable energy consumption to economic growth in transitional economies. Furthermore, policymakers should focus on both variables when making decisions because the results show that energy consumption and economic growth are interconnected. Implementing global energy efficiency standards, reducing fossil fuel usage, and adopting regulatory measures are all viable policies for limiting adverse effects on the environment while encouraging economic development.