Sustainable developments, renewable energy, and economic growth in Canada

Abstract

The object of this paper is to investigate the dynamic causal relationship between economic growth and renewable energy in Canada. The causal relationship is examined under the neoclassical production function framework. We employed a panel autoregressive distributed lag model controlling for different states of the economy by incorporating a dummy variable, which indicates the economic peak and trough. The data set consists of annual real GDP, capital formation, labor, and electricity generation by renewables for nine Canadian provinces covering from 1981 to 2015. The empirical results find that there is a unidirectional causality from renewable energy to economic growth in the long run. In the short run, a unidirectional causality going from renewable energy to economic growth only during the expansion period is observed. Our study suggests that renewable energy policies should be designed and implemented in a way that takes into account the nonlinear relationship between renewable energy and economic growth. This could involve promoting the development and deployment of renewable energy sources as part of their economic stimulus packages during economic upturns.