Assessment of Causality Relationship between Renewable Energy Consumption and Economic Growth in Lithuania

Abstract

The topic of the interrelationship between energy consumption and economic growth is widely discussed in scientific literature. Scientists agree that the reason for the interest in such investigations arises because of increased worldwide concern about the impact of energy and environmental policies on the country’s economy. Recently, the investigations of causality interrelationships between energy consumption and economic growth have been performed for many countries, including Indonesia Thailand, Japan, China, other Asian countries, G7 economies, Spain, Albania, Bulgaria, Romania, Central America, OECD and non OECD, Sub-Sahara African countries, for the panel of countries (China, Hong Kong, Indonesia, Korea, India, Malaysia, Philippines, Singapore, Taiwan, and Thailand), and many other countries. The results of these investigations are different, country-specific and depend on the structure of the economy, energy type selected, period analyzed, methodology applied and a variety of other factors.

The main research question of this article is to answer if consumption of renewable energy sources (further in the text RES) might influence Lithuania’s real gross domestic product (further in the text real GDP); if so what is real GDP elasticity of RES gross inland consumption in Lithuania. Thus, the causality interrelationship between RES gross inland consumption and real GDP in Lithuania during 1990-2009 is analyzed and elasticity coefficients are calculated.

At the beginning of the article scientific literature regarding the issue of interrelationship between RES consumption and economic growth is reviewed. Later, applied methodology is briefly described. Unit root, co-integration and Granger causality tests are the main methods employed to set an interrelationship between the selected variables.

The results of the analysis show that there is a uni-directional causality running from RES gross inland consumption to real GDP in Lithuania in a short-run. The conclusion that wider utilization and consumption of RES could contribute to Lithuanian real GDP in a short-run is reached. A long-run effect of RES development on real GDP is not identified. Calculated coefficients of real GDP elasticity of RES gross inland consumption are positive and above 1.0, i.e. real GDP is elastic in respect to RES gross inland consumption. This reflects that RES gross inland consumption increases slightly slower than real GDP. However, during economic recession period that was influenced by external factors, the growth of RES gross inland consumption only a little could improve the reduction of real GDP (real GDP elasticity is negative).

http://dx.doi.org/10.5755/j01.ee.22.5.969