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Solar photovoltaic investments and economic growth in EU: Are we able to evaluate the nexus?

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Abstract

A core question in energy economics may be stated as follows: Is the cost–benefit analysis being correctly applied when we encourage investments in renewables, as an alternative to the traditional energy sources? The relationship between energy consumption and economic growth has been extensively treated within economics literature. Yet, literature on the nexus between specific energy sources and GDP is almost inexistent. In this article, we intend to explore the relationship between a certain type of renewable generation technology (solar PV) and GDP. The present and above all the planned energy mix might differ widely from one country to another. Thus, the analysis by source of energy generation becomes a helpful instrument for policy-making. Using a fixed effects panel data methodology and a sample of eighteen EU countries, we find that a 1 % increase in solar PV installed capacity and in electricity production from renewable sources has a positive impact on GDP of 0.0248 and 0.0061 %, respectively. We also conclude that a 1 % growth on greenhouse gas emissions positively affects GDP by 0.3106 %. Further evidence reveals that, in terms of country-specific analysis, Germany, France, Italy and the UK have the most significant estimations for fixed effects. In fact, Germany is a solar PV technology producer, France has a very active nuclear sector, with little pressure for both renewables development and CO2 reductions, Italy had in this period a strong governmental support to this sector, and the UK has a strong connection between the solar PV and the industry sectors.

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Notes

  1. Austria, Bulgaria, Croatia, Denmark, France, Germany, Greece, Italy, Malta, the Netherlands, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey and UK.

  2. Soares and Pimenta (2012).

  3. Hsiao (2007).

  4. A renewable source reaches grid parity when it generates power at a levelised cost of energy (LCOE) less or equal to the price of purchasing power from electricity grid.

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Author information

Authors and Affiliations

  1. FEP, Faculty of Economics, University of Porto, Porto, Portugal

    Teresa Grijó

  2. FEP and CEFUP, Faculty of Economics, University of Porto, Porto, Portugal

    Isabel Soares

Authors
  1. Teresa Grijó
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  2. Isabel Soares
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Corresponding authors

Correspondence to Teresa Grijó or Isabel Soares.

Appendices

Appendix 1: Compiled data (installed capacity)

Country

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

DEU

114

195

278

431

1034

1926

2759

3836

5340

9959

17,320

24,875

32,411

35,600

ITA

19

20

22

26

31

38

50

120

458

1157

3502

12,764

16,987

18,400

SP

2

4

7

12

23

48

145

693

3354

3438

3892

4214

4537

4679

PT

1

1

2

2

3

3

3

18

68

102

131

144

244

278

FR

11

14

17

21

26

33

44

75

180

335

1025

2831

3843

4598

UK

2

3

4

6

8

11

14

18

23

30

72

1014

1831

2706

AUT

5

6

10

17

21

24

26

28

32

53

103

176

418

690

CHE

15

18

20

21

23

27

30

36

48

74

111

216

416

716

NLD

13

21

26

46

49

51

52

53

57

68

97

118

321

665

DNK

1.5

1.5

1.6

1.9

2.3

2.7

2.9

3.1

3.3

5

7

17

394

594

SWE

2.8

3.0

3.3

3.6

3.9

4.2

4.8

6.2

7.9

9

11

16

24

43

GRC

–

–

–

–

–

–

–

–

–

55

206

631

1536

2523

MLT

–

–

–

–

–

–

–

–

–

2

2

12

18

25

TUR

0.4

0.6

0.9

1.3

1.8

2.3

2.8

3.3

4.0

5

6

7

9

15

SVN

–

–

–

–

–

–

–

–

–

9

36

90

198

255

SVK

–

–

–

–

–

–

–

–

–

0

145

488

523

537

HRV

–

–

–

–

–

1

1

3

6

12

16

16

22

25

BRG

–

–

–

–

–

–

–

–

–

6

18

133

933

1019

  1. Source IEA, EPIA, EurObserver’ER (compiled)

Appendix 2: Pooled OLS

Dependent variable: LOG(GDP)

Method: Panel least squares

Date: 09/01/15 Time: 10:34

Sample: 2000–2012

Periods included: 13

Cross sections included: 18

Total panel (balanced) observations: 234

Variable

Coefficient

SE

t Statistic

Prob.

C

30.84199

2.473542

12.46876

0.0000

LOG(INSTCAP)

0.184749

0.029062

6.357069

0.0000

LOG(EMP)

−1.992344

0.528089

−3.772742

0.0002

LOG(EMISS)

0.213863

0.229244

0.932905

0.3519

LOG(ELECTPROD)

0.141994

0.013216

10.74423

0.0000

LOG(DEPEN)

−0.121857

0.044505

−2.738074

0.0067

R 2

0.612420

Mean dependent var

26.64644

Adjusted R 2

0.603921

S.D. dependent var

1.490800

SE of regression

0.938233

Akaike info criterion

2.735669

Sum squared resid

200.7039

Schwarz criterion

2.824267

Log likelihood

−314.0733

Hannan–Quinn criter.

2.771392

F statistic

72.05324

Durbin–Watson stat

0.524631

Prob(F statistic)

0.000000

  

Appendix 3: Hausman test

Correlated random effects—Hausman test

Equation: EQ01_RN_HAUSMAN

Test Cross-section random effects

Test summary

χ 2 statistic

χ 2 d.f.

Prob.

Cross-section random

79.634548

5

0.0000

Cross-section random effects test comparisons:

Variable

Fixed

Random

Var (diff.)

Prob.

LOG(INSTCAP)

0.030167

0.030452

0.000000

0.1895

LOG(EMP)

0.876087

0.863799

0.000360

0.5170

LOG(EMISS)

0.465119

0.466610

0.000131

0.8963

LOG(ELECTPROD)

0.005806

0.006201

0.000000

0.0000

LOG(DEPEN)

−0.000448

−0.000742

0.000000

0.0000

Cross-section random effects test equation:

Dependent variable: LOG(GDP)

Method: Panel least squares

Date: 09/01/15 Time: 11:22

Sample: 2000–2012

Periods included: 13

Cross sections included: 18

Total panel (balanced) observations: 234

Variable

Coefficient

SE

t Statistic

Prob.

C

20.82267

0.584782

35.60759

0.0000

LOG(INSTCAP)

0.030167

0.003055

9.875069

0.0000

LOG(EMP)

0.876087

0.146385

5.984814

0.0000

LOG(EMISS)

0.465119

0.077002

6.040359

0.0000

LOG(ELECTPROD)

0.005806

0.001496

3.880451

0.0001

LOG(DEPEN)

−0.000448

0.003197

−0.140271

0.8886

Effects specification

Period fixed (dummy variables)

 R 2

0.998320

Mean dependent var

26.64644

 Adjusted R 2

0.998145

S.D. dependent var

1.490800

 SE of regression

0.064212

Akaike info criterion

−2.560135

 Sum squared resid

0.869991

Schwarz criterion

−2.220510

 Log likelihood

322.5358

Hannan–Quinn criter.

−2.423199

 F statistic

5699.146

Durbin–Watson stat

0.548801

 Prob(F statistic)

0.000000

  

Appendix 4: Fixed effects test: likelihood

Redundant fixed effects tests

Equation: EQ01FF

Test cross-section and period fixed effects

Effects test

Statistic

d.f.

Prob.

Cross-section F

4272.855558

(17,199)

0.0000

Cross-section χ 2

1381.227587

17

0.0000

Period F

23.169508

(12,199)

0.0000

Period χ 2

204.582255

12

0.0000

Cross-section/period F

3787.970313

(29,199)

0.0000

Cross-section/period χ 2

1477.800447

29

0.0000

Cross-section fixed effects test equation:

Dependent variable: LOG(GDP)

Method: Panel least squares

Date: 09/01/15 Time: 11:25

Sample: 2000–2012

Period included: 13

Cross sections included: 18

Total panel (balanced) observations: 234

Variable

Coefficient

SE

t Statistic

Prob.

C

31.94263

2.081791

15.34382

0.0000

LOG(INSTCAP)

0.344571

0.028813

11.95868

0.0000

LOG(EMP)

−2.348589

0.444640

−5.282000

0.0000

LOG(EMISS)

0.138463

0.192433

0.719538

0.4726

LOG(ELECTPROD)

0.141078

0.011109

12.69933

0.0000

LOG(DEPEN)

−0.083771

0.037801

−2.216125

0.0277

Effects specification

Period fixed (dummy variables)

 R 2

0.743477

Mean dependent var

26.64644

 Adjusted R 2

0.723288

S.D. dependent var

1.490800

 SE of regression

0.784212

Akaike info criterion

2.425529

 Sum squared resid

132.8375

Schwarz criterion

2.691322

 Log likelihood

−265.7868

Hannan–Quinn criter.

2.532696

 F statistic

36.82536

Durbin–Watson stat

0.438488

 Prob(F statistic)

0.000000

  

Period fixed effects test equation:

Dependent variable: LOG(GDP)

Method: Panel least squares

Date: 09/01/15 Time: 11:25

Sample: 2000–2012

Periods included: 13

Cross sections included: 18

Total panel (balanced) observations: 234

Variable

Coefficient

SE

t Statistic

Prob.

C

20.82267

0.584782

35.60759

0.0000

LOG(INSTCAP)

0.030167

0.003055

9.875069

0.0000

LOG(EMP)

0.876087

0.146385

5.984814

0.0000

LOG(EMISS)

0.465119

0.077002

6.040359

0.0000

LOG(ELECTPROD)

0.005806

0.001496

3.880451

0.0001

LOG(DEPEN)

−0.000448

0.003197

−0.140271

0.8886

Effects specification

Cross-section fixed (dummy variables)

 R 2

0.998320

Mean dependent var

26.64644

 Adjusted R 2

0.998145

S.D dependent var

1.490800

 SE or regression

0.064212

Akaike info criterion

−2.560135

 Sum squared resid

0.869991

Schwarz criterion

−2.220510

 Log likelihood

322.5358

Hannan–Quinn criter.

−2.423199

 F statistic

5699.146

Durbin–Watson stat

0.548801

 Prob(F statistic)

0.000000

  

Cross-section and period fixed effects test equation:

Dependent variable: LOG(GDP)

Method: Panel least squares

Date: 09/01/15 Time: 11:25

Sample: 2000–2012

Periods included: 13

Cross sections included: 18

Total panel (balanced) observations: 234

Variable

Coefficient

SE

t Statistic

Prob.

C

30.84199

2.473542

12.46876

0.0000

LOG(INSTCAP)

0.184749

0.029062

6.357069

0.0000

LOG(EMP)

−1.992344

0.528089

−3.772742

0.0002

LOG(EMISS)

0.213863

0.229244

0.932905

0.3519

LOG(ELECTPROD)

0.141994

0.013216

10.74423

0.0000

LOG(DEPEN)

−0.121857

0.044505

−2.738074

0.0067

R 2

0.612420

Mean dependent var

26.64644

Adjusted R 2

0.603921

S.D. dependent var

1.490800

SE of regression

0.938233

Akaike info criterion

2.735669

Sum squared resid

200.7039

Schwarz criterion

2.824267

Log likelihood

−314.0733

Hannan–Quinn criter.

2.771392

F statistic

72.05324

Durbin–Watson stat

0.524631

Prob(F statistic)

0.000000

  

Appendix 5: Fixed effects—white correction

Dependent variable: LOG(GDP)

Method: Panel EGLS (cross-section weights)

Date: 09/01/15 Time: 11:29

Sample: 2000–2012

Periods included: 13

Cross sections included: 18

Total panel (balanced) observations: 234

Linear estimation after one-step weighting matrix

White cross-section standard errors & covariance (d.f. corrected)

Variable

Coefficient

SE

t Statistic

Prob.

C

21.80865

0.489726

44.53238

0.0000

LOG(INSTCAP)

0.024806

0.003513

7.061065

0.0000

LOG(EMP)

0.811507

0.104958

7.731738

0.0000

LOG(EMISS)

0.310639

0.094920

3.272627

0.0012

LOG(ELECTPROD)

0.006081

0.000694

8.762536

0.0000

LOG(DEPEN)

−0.001367

0.002073

−0.659426

0.5103

Effects specification

Cross-section fixed (dummy variables)

 Weighted statistics

  R 2

0.999381

Mean dependent var

38.87468

  Adjusted R 2

0.999317

S.D. dependent var

21.18626

  SE of regression

0.062506

Sum squared resid

0.824386

  F statistic

15492.09

Durbin–Watson stat

0.670745

  Prob(F statistic)

0.000000

  

 Unweighted statistics

  R 2

0.998268

Mean dependent var

26.64644

  Sum squared resid

0.897040

Durbin–Watson stat

0.530455

 

Cross-id

Effect

1

DEU

2.061612

2

AUT

−0.209158

3

BRG

−0.979265

4

HRV

−1.263152

5

DNK

−0.564062

6

SVK

−1.002359

7

SVN

−1.940819

8

ESP

1.242189

9

FRA

1.802891

10

GRC

−0.103392

11

NLD

0.484182

12

ITA

1.787151

13

MLT

−3.416945

14

PT

−0.434197

15

UK

1.706435

16

SWE

−0.055265

17

CHE

−0.154519

18

TUR

1.038671

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Grijó, T., Soares, I. Solar photovoltaic investments and economic growth in EU: Are we able to evaluate the nexus?. Environ Dev Sustain 18, 1415–1432 (2016). https://doi.org/10.1007/s10668-016-9806-7

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