Abstract:
In this paper we examine the causal relationship between renewable energy consumption and
economic growth across the G7 countries, using annual data for the period of 1990 to 2011.
By employing the causality methodology proposed by Emirmahmutoglu and Kose (2011), we
investigate if there is a causal relationship between the variables. The advantage of this
methodology is that it takes into account possible slope heterogeneity and cross-sectional
dependency in a multivariate panel. The empirical results support the existence of a bidirectional
causal relationship between economic growth and renewable energy for the
overall panel. However, looking at the individual results for each country, the neutrality
hypothesis is confirmed for Canada, Italy and the US; while for France and UK there is a
unidirectional causality from GDP to renewable energy, and the opposite for Germany and
Japan.
