Causal dynamics between renewable energy consumption and economic growth in South Korea: Empirical analysis and policy implications

Abstract

This paper examines the causal relationship between renewable energy consumption and economic growth in South Korea using a framework of the conventional neo-classical production function of capital, labor, and renewable energy. We use cointegration technique of the autoregressive distributed lag bounds test and vector error correction mechanism causality tests to determine the econometric relationship, using data for the period 1990-2012; the results support the conservation hypothesis for South Korea. The results of the autoregressive distributed lag bounds test show that renewable energy consumption has a negative effect on economic growth, and the results of a vector error correction mechanism causality tests indicate a unidirectional relationship from economic growth to renewable energy consumption. The empirical results imply that economic growth is a direct driver expanding renewable energy use. In terms of policy implications, it is best for policy makers to focus on overall economic growth rather than expanding renewable energy to drive economic growth.