Relationship between the share of renewable electricity consumption, economic complexity, financial development, and oil prices: A two-step club convergence and PVAR model approach

The share of renewable energy consumption in total electricity consumption is analysed for a sample of forty-nine countries worldwide from 1985 to 2017. The analysis follows a two-step approach. First, the club convergence model was used to find the convergent countries. Second, a panel vector autoregression (PVAR) model estimation was used to analyse the convergent countries. Club convergence analysis confirms that forty-two countries are convergent in renewable energy consumption in total electricity consumption. The subgroup convergence tests confirm the existence of seven subgroups and one non-convergent group. Of these eight groups, the first seven are convergent among their group members, but the eighth group (Norway, Switzerland, Trinidad and Tobago) is non-convergent. The PVAR revealed a dense Granger causal relationship among the variables share of renewable electricity consumption, fossil consumption, GDP, trade openness, economic complexity, financial development, and oil prices. In their interventions, policymakers should be aware that the share of renewable energy consumption in total electricity consumption is very interdependent.