Can conventional energy be replaced by renewable energy without harming economic growth in non-oil-MENA? Evidence from Granger causality in VECM, Badry Hechmy
Purpose: The purpose of this paper is to examine the relationship between renewable energy consumption and economic growth in non-oil countries in the Middle East and North Africa (non-oil-MENA) during the period from 2000 to 2014. The Pedroni (2000) test shows that there is a long-term cointegration relationship between those variables; however, the Granger causality test in the vector error correction model (VECM) shows that this relationship is bidirectional in the short and long term. Thus, to ensure sustainable economic growth without pollution and to reduce dependence on abroad, renewable energies can be chosen as substitutes for conventional energies in the non-oil-MENA countries.
Design/methodology/approach: First, LLC and IPS unit root tests are used to test the variables stationarity; and, second, Pedroni panel cointegration and Engle–Granger causality by VECM analysis are used to check the relationship between the studied variables.
Findings: Empirical results show that the renewable energy consumption and economic growth are cointegrated and that there are two-way causal relationships between them in the long and in the short term. These countries must therefore encourage the consumption of renewable energy instead of traditional energy to reduce their dependence on energy from abroad and CO2 pollution.
Originality/value: The originality of this work lies in the measurements of the study variables and the empirical investigation methods used.
Keywords: Economic growth; Renewable energy; VECM; Causality test; Cointegration test; Non-oil-MENA; C33; C23; Q43
Citation: Hechmy, B. (2019), "Can conventional energy be replaced by renewable energy without harming economic growth in non-oil-MENA? Evidence from Granger causality in VECM", World Journal of Entrepreneurship, Management and Sustainable Development, Vol. 15 No. 2, pp. 159-168. https://doi.org/10.1108/WJEMSD-11-2018-0098