The effect of renewable and nonrenewable electricity generation on economic growth

This note examines the impact of electricity generation on economic growth using data for a panel of 174 countries over the period 1980-2012. The paper makes several contributions. First, contrary to much of the literature, the paper focuses on the effect of electricity generation on economic growth. Because of transmission and distribution losses, and theft, not all the electricity that is generated is eventually consumed, making it necessary to investigate the impact of electricity generation on growth. Second, we disentangle the impact of total electricity generation on growth into renewable and nonrenewable effects. With increasing pursuit of energy security, technological advances, the falling costs of renewables, and the movement to exploit renewable energy sources for electrification, there is need to study not only the impact of traditional sources of electricity but renewable sources, as well. Third, we deviate from previous studies that focus on granger causality and/or cointegration by estimating the effect of electricity generation on growth using the System Generalized Method of Moments (GMM). Given that electricity generation and many of the other regressors in our model may be jointly determined with GDP growth, the System GMM approach is appropriate to deal with these endogeneity issues. Fourth, we provide evidence of a link between electricity loss and economic growth. Our results indicate a strong positive and statistically significant relationship between renewable and nonrenewable electricity generation, and growth.