Effect of Economic Growht on Renewable Energy Consumption in the Developed Countries: A Panel Data and CUP-FM Estimation Apporach

Production without energy is not possible. Thus, a country’s economic growth, as the main objectives for economic policy makers, is affected by energy use. Due to its non-renewable nature, environmental considerations, as well as uncertainty in its steady supply, fossil fuels are being replaced by renewable energies. The paper aims to study the long run relationship between renewable energy and economic growth using 1985-2012 annual data for the selected developed countries. The unit root and cointegration techniques were used to analyze temporal and long run relations. The results indicated that there was a long run relationship between renewable energy usage and economic growth in the selected developed countries. Thus, one percent economic growth leads to 1.23 percent increase in the renewable energy consumption. The results implies that governments should invest more on renewable energy in order to boost economic growth.