Renewable energy and economic performance in developing countries: The role of climate change

Abstract

The objective of this paper is to explore the extent to which climate change influences the relationship between renewable energy consumption and economic performance in 84 developing countries from 1990 to 2018. Using fixed-effects models with Driscoll-Kraay residual adjustment, system GMM and Pooled OLS for analysis and robustness checks, the results show a significant U-shaped relationship between renewable energy consumption and economic performance. Below a threshold of 97% of total energy consumption, an increase in renewable energy is associated with a decline in economic performance, whereas above this threshold, it contributes to its improvement. When climate change interacts with renewable energy, this threshold drops to 74%, suggesting that an energy mix combining renewable and non-renewable sources leads to faster gains in economic performance. These results support energy transition policies aimed at reducing the effects of climate change whilst stimulating economic growth in developing countries.