Renewable energy consumption and economic growth. Causality relationship in Central and Eastern European countries

Abstract

The new European model stipulates the achievement of an inclusive, sustainable and intelligent economic growth. Increasing the share of renewable energy is one of the factors that improve the quality of economic growth, similar to research, development and investment in human capital. In this paper we tested the correlation between economic growth and renewable energy consumption for ten European Union (EU) member states from Central and Eastern Europe (CEE) in the period 1990–2014, using Auto-regressive and Distributed Lag (ARDL) modeling procedure, a technique that captures causal relationships both on a short run and on a long run. The short run perspective reveals the transition towards a new energy paradigm, while the long run approach corresponds to the long-term equilibrium of the analyzed factors. Our results shows that, in the short run, the Gross Domestic Product (GDP) and Renewable Energy Consumption (REC) dynamics are independent in Romania and Bulgaria, while in Hungary, Lithuania and Slovenia an increasing renewable energy consumption improves the economic growth. The hypothesis of bi-directional causality between renewable energy consumption and economic growth is validated in the long run for both the whole group of analyzed countries as well as in the case of seven CEE states which were studied individually. These results allow us to look into the feasibility of the Europe 2020 goals regarding the increase of energy efficiency and to propose public policies to achieve these goals.