The Electricity Consumption-Growth Nexus: Renewable Versus Non-Renewable Electricity in Central America

Abstract

This study investigates the Granger-causal relationship between renewable and non-renewable electricity consumption and economic growth in the case of Central America within a panel error correction model framework. Larsson et al. (2001) panel cointegration test reveals a long-run equilibrium relationship between real gross domestic product, renewable electricity consumption, non-renewable electricity consumption, real gross fixed capital formation, and the labor force. With the exception of renewable electricity consumption, the respective long-run coefficient estimates are positive and statistically significant. The results from the panel error correction model indicate unidirectional causality from renewable electricity consumption to economic growth in the short-run, but bidirectional causality in the long-run. The results also indicate bidirectional causality between non-renewable electricity consumption and economic growth in both the short-run and long-run.

Keywords:

• Central America
• Granger-causality
• growth
• panel
• renewable and non-renewable electricity consumption

Notes

¹See Payne (2009) and Bowden and Payne (2010) and citations therein for studies utilizing disaggregate measures of energy consumption.

²The brief overview of Central America draws from Apergis and Payne (2009a) and the International Energy Outlook (2010).

Note: Critical values at the 1% level denoted by “a”: LLC −0.84, Fisher-ADF 56.09, Fisher-PP 61.15, CBL (HOM) 6.73, and CBL (HET) 6.11.

³Belize is omitted due to data availability for the variables.

⁴For specific details on the panel cointegration procedure see Larsson et al. (2001).