An empirical analysis of the impact of renewable and non-renewable energy consumption on economic growth and carbon dioxide emissions: evidence from seven Northeast Asian countries

Abstract

Oil and natural consumption are non-renewable energy sources that are the main drivers of economic growth, but these energy sources are also the main causes of environmental degradation in Northeast Asian countries. The main objective of this study is to examine the impact of renewable energy consumption, non-renewable energy consumption on CO₂ emissions, and economic growth in seven selected Northeast Asian countries during the period 1970-2020. First, the cross-sectional dependence test recommended by Pesaran, Ullah, and Yamagata (2008) concludes that there is no cross-sectional dependence in the panel data model, so it is feasible to use the first-generation panel data methods. Later, cointegration tests proposed by Pedroni (Oxford Bull Econ Stat 61:653-670, 1999, Economet Theor 20:597-625, 2004), Kao (J Econom 90:1-44, 1999), and Westerlund (2007) were adopted, revealing long-term cointegration relationships among model panel variables. Long-term variable coefficient elasticities were detected using the estimation techniques of panel fully modified ordinary least squares (FMOLS) and panel dynamic ordinary least squares (DOLS). Two-way causality of variables was detected using the Dumitrescue-Hurlin (Econ Model 29:1450-1460, 2012) panel causality test. The results of the analysis highlight the significant progressive effects of renewable energy consumption, nonrenewable energy consumption, employed labor force, and capital formation on long-run economic growth. The study also concluded that renewable energy consumption significantly reduced long-term CO₂ emissions, while non-renewable energy consumption significantly contributed to long-term CO₂ emissions. Estimates from the FMOLS technique reflect a significant progressive effect of GDP and GDP³ on CO₂ emissions, while GDP² has a significant adverse effect on CO₂ emissions, thus validating the N-shaped EKC assumption in selected group of countries. Furthermore, the feedback hypothesis is supported based on the two-way causality between renewable energy consumption and economic growth. Strategically, this evidence-based empirical study demonstrates that renewable energy is a valuable process that can protect the environment and contribute to future economic growth in selected countries by addressing energy security and reducing carbon emissions.

Keywords: Carbon emission; Economic growth; Non-renewable energy consumption; Renewable energy consumption; Seven northeast Asian countries.