Renewable energy and total factor productivity in OECD member countries

Abstract

This paper studies the impact of renewable energy on the total factor productivity (TFP), considering the role of human capital, innovation and trade openness in Organization for Economic Co-operation and Development (OECD) countries. By applying Cross-Sectional Autoregressive Distributed Lags (CS–ARDL) technique, we analyse panel time-series data. We find our variables are non-stationary and strongly correlated across sample countries. Our findings support the argument that the use of renewable energy in the production process spurs TFP in the long run through different macroeconomic channels. Fossil fuel-driven production process is found to be inconclusive in influencing TFP in the long run. Human capital and technological advancement appear to be driving factors in spurring TFP in OECD countries. Our findings are robust in the presence of the common correlation effect, as well as heterogeneous and homogeneity restrictions in the short-run and long-run parameters. We identify several resultant policy implications.