Exploring the Nonlinear Relationship between Renewable Energy Consumption and Green Economic Growth Across Income Groups: Evidence from PSTAR Model

Abstract

The transition to a sustainable energy system is imperative given the escalating concerns over fossil fuel dependency, energy security, and the pursuit of sustainable economic growth. This study investigates the nonlinear relationship between renewable energy consumption and economic growth across 61 countries, categorized into high-, middle-, and low-income economies, over the period 1990-2020. Using the Panel Smooth Transition Auto-Regressive (PSTAR) model, the results indicate that the impact of renewable energy consumption on green economic growth is conditional on a threshold value of 3.883. Below this threshold, renewable energy consumption negatively affects economic growth, whereas above it, it becomes a significant driver of economic expansion. Furthermore, the transition from a low to a high renewable energy consumption regime is abrupt, as indicated by the gamma transition parameter of 2.592. These findings hold significant policy implications, suggesting the need for tailored energy policies that facilitate the transition to higher renewable energy consumption levels to achieve sustainable economic growth. The study provides concrete policy recommendations based on empirical insights.