Analyzing the Impact of the Renewable Energy Sources on Economic Growth at the EU Level Using an ARDL Model

Energy is one of the most important drivers of economic growth, but as the population is increasing, in normal circumstances, in all countries of the world, there is a demand for energy produced from conventional resources. Increasing prices of conventional energy and the negative impact on the environment are two of the main reasons for switching to renewable energy sources (RESs). The aim of the paper is to quantify the impact of the RESs, by type, on the sustainable economic growth at the European Union (EU) level. The research was performed for all 28 EU member states, for a time frame from 2004 to 2017, through a panel autoregressive distributed lag (ARDL) approach and causality analysis. Furthermore, Hausman test was performed on the regression model. By estimating the panel data regression model with random effects, we reveal through our results that RESs, namely wind, solar, biomass, geothermal, and hydropower energy, have a positive influence on economic growth at EU level. Moreover, biomass has the highest impact on economic growth among all RES. In fact, a 1% increase in biomass primary production would impact the economic growth by 0.15%. Based on econometric analysis, our findings suggest that public policies at the EU level should be focused on investment in RESs.