A recent study conducted by researchers Idris, Seraj and Özdeşer from Deparment of Economics, Near East University delves into the crucial intersection of renewable energy consumption, trade balances, and CO2 emissions in OECD countries. With a focus on the period from 2000 to 2018, the study employs the Auto Regression Distributed Lag model (ARDL) and Johansen Cointegration Test to unravel the intricate relationship among these variables.
The findings bring attention to an often overlooked aspect of renewable energy impact – its influence on trade balances. The study identifies a noteworthy long-run and short-run cointegrating relationship, revealing that renewable energy consumption has a positive long-term impact on trade balances. However, in the short term, the impact is negative, suggesting a nuanced dynamic at play.
Particularly significant is the insight that increasing renewable energy consumption could exacerbate trade deficits in the short run for some OECD countries, including the UK, France, Greece, Latvia, Mexico, Turkey, and the USA. On the flip side, countries like Austria, Switzerland, the Czech Republic, Germany, Denmark, Ireland, the Republic of Korea, Luxembourg, The Netherlands, Norway, and Sweden, which maintained a net trade surplus during the study period, may find stability in their surplus by increasing renewable energy consumption.
The study underscores the need for a tailored approach, emphasizing that each country should conduct its own investigation into the matter. The trade balance deficit, often considered a dilemma for various countries, requires careful consideration alongside other economic indicators. While acknowledging the short-term negative effects of renewable energy consumption on trade balances, decision-makers are urged to prioritize the long-term positive impacts for effective policy settings.
In conclusion, the study advocates for the formulation of policies in OECD countries that encourage substantial investment in domestic capabilities to mitigate the adverse short-term effects of renewable energy consumption on trade balances. By doing so, countries can harness the environmental and economic benefits of renewable energy while navigating the intricacies of global trade dynamics.
More Information:
https://www.emerald.com/insight/content/doi/10.1108/IJESM-02-2022-0009/full/html
