For the impact of renewable energy production and financial development on economic growth, this study focuses on the empirical specification of Singh et al. (2019) and Azam et al. (2021) which sets real GDP (G) as a function of gross capital formation (KC), labour (L) and renewable energy (RE).
G = Af(KC, L, RE) … (1)
Expressing the above model in per capita terms:
gt = Af(kc, re)… (2)
Financial development, which could affect the efficiency of technology (A), is integrated into the equation. Trade openness, which could also influence technological effectiveness, is included in the model as a control variable. Institution captured by regulatory quality (RQ) and voice and accountability (VA), are also controlled in the model. Institution spurs productivity for growth.
Regulatory quality denotes the capacity of the government to enact suitable policies for the improvement of the private sector. Voice and accountability refers to the ability of a country’s citizens to express their views of governance in an efficient manner. Regulatory quality is used as a metric of institutional quality because efficient policy formulation promotes the development and of the private sector and encourages private sector investment. Moreover, voice and accountability is also adopted in this study as an institutional quality metric because it also incorporates military participation in democracy and politics which increases corruption and reduces confidence of investors and capital inflow (Nadeem et al., 2020).
Thus, the empirical model is:
Loggt = α0 + α1Logkcit + α2Logreit + α3LogFDit + α4LogTOit + α5LogRQit + α6LogVAit + µt … (3)
Where i = 1, …, N denotes the county and t = 1, …, T denotes time
Table 1
Variable | Description | Measurement | Data Sources |
g | Gross domestic product (GDP) per capita | GDP per capita (constant 2010 US$) | World Development Indicators |
kc | Capital formation per head | Gross fixed capital formation per head (constant 2010 US$) | United Nations statistics |
re | Renewable energy production per capita | Renewable energy power generation per head (kwH) | International Energy Agency |
FD | Financial development | Monetary sector credit to private sector (% of GDP) | World Development indicators |
TO | Trade openness | Exports of goods and services + imports of goods and services as a % of GDP | World Development Indicators |
RQ | Regulatory quality | Regulatory Quality: Percentile Rank | World Governance Indicators |
VA | Voice and Accountability | Voice and accountability: Percentile Rank | World Governance Indicators |
The study extracted data for 32 selected African countries[2] for the period of 1996 to 2018. The countries are grouped into oil-rich and non-oil rich as well as upper middle income, lower middle income and low income countries based on UN classification to allow comparative analysis. The study first tests for cross-sectional dependency (CD), performs both first generation and second generation panel unit root tests, then employs the Dynamic OLS, Pooled Mean Group, and the Augmented Mean Group estimators selected based on the cross-sectional dependence test result and Hausman Test. The Kao (1999) and Pedroni (1999) cointegration tests as well as the Westerlund (2005) cointegration test in the presence of CD are used.
Footnote:
[2] Nigeria, Algeria, Angola, Egypt, Ghana, Sudan, Equatorial Guinea, Republic of Congo, Cameroon, Libya, Gabon, Zambia, Mozambique, Namibia, Togo, Mauritius, Kenya, Botswana, Tanzania, Senegal, Benin, Sierra Leone, Burkina Faso, Uganda, South Africa, Comoros, Ethiopia, Madagascar, Lesotho, Central African Republic and Burundi