A new look at the growth-renewable energy nexus: Evidence from a sectoral analysis in Sub-Saharan Africa

Abstract

A growing number of studies have investigated the growth-renewable energy nexus with mixed findings. However, they have mostly focused on aggregate growth ignoring the sectoral level differences. Like economic growth, it is been argued that there are sectoral dynamics in the determinants and impact of renewable energy. Hence, this paper examines the effect of renewable energy on value-added in the agricultural, industrial and service sectors in a selected sample of 12 Sub-Saharan African countries from 1985 to 2017. The findings from the PMG - ARDL model show that renewable energy significantly improves value-added in these sectors in the long run with the highest impact in the service sector. In the short run, however, renewable energy does not have a significant effect on sectoral value-added. Also, findings show that nonrenewable energy consumption significantly enhances the service value-added whereas capital and labor spur value-added in the three sectors. Finally, the causality test unveils a unilateral effect from renewable energy to agriculture value-added, from service value-added to renewable energy, and a neutral relationship exists between renewable energy and industry value-added. These findings suggest investments in renewable energy are long-term in nature. In the short term, however, governments could provide financial incentives such as subsidies and/or tax exemptions to boost the adoption of modern and more energy-efficient technologies across economic sectors.