A Time Varying Coefficient Approach to the Renewable and Non-Renewable Electricity Consumption-Growth Nexus: Evidence from a Panel of Emerging Market Economies

Abstract

This study extends the investigation of the relationship between renewable and non-renewable electricity consumption and economic growth for 16 emerging market economies within a time-varying coefficient cointegration model spanning the period 1990–2011. The standard panel cointegration tests with fixed coefficients indicate that there is a stable 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. However, the time-varying coefficient cointegration tests show that the stability of the long-run relationship is rejected with the coefficient for non-renewable electricity consumption declining over time while the coefficient for renewable electricity consumption rising.

Keywords:

• emerging economies
• non-renewable electricity consumption
• renewable electricity consumption
• time-varying panel cointegration

Notes

¹Payne (2010a,b) provides an extensive survey of the empirical literature on the causal relationship between energy consumption and economic growth.

²Both the RATS software (Estima, Evsntaon, IL) (fixed coefficients) and the GAUSS software (Black Diamond, WA) (time-varying coefficients) were used in the empirical analysis.

³ Pedroni (1999) provides details with respect to the heterogeneous panel and group mean panel cointegration tests.