Linkages between Economic Growth, Renewable Energy, and Environmental Degradation: Evidence from Developing Economies Using CS-ARDL

Abstract

Purpose

This paper investigates the dynamic relationship among gross domestic product (GDP), renewable energy consumption, and environmental degradation in developing economies, to identify both growth and environmental implications while accounting for heterogeneity and cross-sectional dependence across countries.

Methodology

The study employs panel data econometric techniques, including Pooled Ordinary Least Squares (OLS) and the cross-sectionally augmented autoregressive distributed lag (CS-ARDL) model. Model adequacy and robustness are assessed through extensive post-estimation diagnostics, including R² decomposition, F-statistics, information criteria (AIC and BIC), and residual analysis.

Findings

The results show that traditional estimators, such as OLS, are inadequate for capturing slope heterogeneity and cross-sectional dependence. In contrast, the CS-ARDL model outperforms alternative estimators, as evidenced by lower AIC/BIC values, near-zero mean residuals, and high joint explanatory power. Empirical evidence supports three main hypotheses: (i) renewable energy consumption has a positive and significant long-run effect on GDP, underscoring its role in enhancing productive capacity and fostering sustainable growth; (ii) CO₂ emissions exert an adverse effect on long-run GDP, consistent with the Environmental Kuznets Curve (EKC) hypothesis; and (iii) there is pronounced cross-country heterogeneity in the energy–growth nexus, reflecting differences in industrial structure, trade patterns, and energy efficiency.

Conclusion

The study highlights the importance of advanced econometric approaches such as CS-ARDL for deriving reliable inferences in heterogeneous panel settings. Policy implications suggest that developing economies should promote renewable energy not only as a driver of economic growth but also as a means of mitigating environmental degradation. Given the observed heterogeneity, country-specific policy strategies are essential, as uniform policy prescriptions may fail to account for structural and institutional differences across economies.