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Renewable energy and economic growth: A Markov-switching approach

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  • Chen, Yiyang
  • Mamon, Rogemar
  • Spagnolo, Fabio
  • Spagnolo, Nicola

Abstract

This paper examines the dynamic causal relationship between renewable energy prices and economic growth in the cases of Norway, New Zealand, and two Canadian provinces. A Markov-switching vector autoregression (MS-VAR) model is used with model parameters being governed by a hidden Markov chain, allowing the causal relationship to vary amongst different states of the economy. A unidirectional causal link, running from economic growth to renewable energy is found in the case of New Zealand, Alberta, and Ontario. The causality emerges in the cases of New Zealand and Ontario, during periods of high economic growth, whilst it materializes in the cases of Alberta during periods of low economic growth. Our empirical results document the existence of a time-dependent causal relationship between renewable-energy prices and economic growth.

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  • Chen, Yiyang & Mamon, Rogemar & Spagnolo, Fabio & Spagnolo, Nicola, 2022. "Renewable energy and economic growth: A Markov-switching approach," Energy, Elsevier, vol. 244(PB).
    • Handle: RePEc:eee:energy:v:244:y:2022:i:pb:s0360544221033387
    DOI: 10.1016/j.energy.2021.123089
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    More about this item

    Keywords

    Economic growth; Hidden Markov model; Regime-switching dynamics; Renewable energy; Vector autoregressive model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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