Sustainable and non-sustainable energy and output in Latin America: A cointegration and causality approach with panel data

Abstract

The use of renewable energy in Latin America has increased significantly in recent years as a result of social pressure due to the negative effects generated by the use of polluting energy. However, there is still limited empirical evidence on the effect of clean energy on the output. The objective of this research is to examine the causal link among the growth rates of sustainable energy consumption, non-sustainable energy and the real per capita output in Latin America, a region with a high potential to generate clean energy. We used Pedroni (1999) and Westerlund (2007) cointegration techniques, and Dumitrescu and Hurlin (2012) causality test to evaluate the relationship among the variables. In order to evaluate the strength of the cointegration vector, we applied the dynamic ordinary least squares for individual countries and the panel dynamic ordinary least squares model for country groups. We find robust empirical evidence that suggests that the growth rate of renewable energy consumption, non-renewable energy and the rate of growth of real per capita output have a short-term and long-term equilibrium relationship. The force of the cointegration vector among the output and the renewable energy is more forceful in the countries of medium-high and medium-low incomes. The cointegration vector among the output and non-renewable energy is stronger in high-income countries. The results of the causality test suggest that renewable energy and the real per capita output have a bidirectional relationship in low-middle income countries. The output causes renewable energy in all groups of countries. Likewise, there is a unidirectional causality from the real per capita output towards non-renewable energy. One possible policy implication derived from this research is that high-income countries in the region should look for alternative sources of energy to achieve sustainable growth, and medium-high and medium-low income countries should encourage the use of energy clean, which does not limit the economic growth.

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