Toward Understanding Renewable Energy and Sustainable Development in Developing and Developed Economies: A Review

Abstract

In recent years, there has been an upsurge of studies on sustainable development. The majority of research focuses on developed countries and issues that are incompatible with developing nations. This study addresses a gap in the literature by reviewing the research on developed and developing economies, as well as their social and environmental boundaries, under the renewable energy and sustainable development (RESD) nexus. It also explores how RESD may be applied in extreme situations such as population increase, energy supply disruptions, and transportation shortfalls. The fundamental contribution of this paper is to provide detailed debate from the perspective of economic growth hypotheses and their relationship with energy usage and renewable energy solutions for sustainable growth and development.

1. Introduction

Over the last few years, there has been a surge in research on sustainable growth. Energy is required for economic expansion and renewable energy sources are required for sustainable development [1,2]. Although the developed world has already seen rapid growth in recent years, with renewable energy absorption levels reaching double-digit proportions across several countries’ power generation, many other developing nations are still at a beginning level in renewable energy generation [3]. In addition, non-renewable energy has recently remained the most widely utilized power source in the developing world, accounting for more than 87 percent of energy requirements [4]. Fossil fuels and other non-renewable energy sources generate CO₂ emissions as a byproduct. Since non-renewable fuels are the primary source of pollution, several countries have attempted to improve their manufacturing processes and energy use in the wake of recent disasters. Some countries have abandoned fossil fuels in favor of renewable sources, while many others still use fossil fuels as the primary source of energy [5]. Indeed, most energy extraction in developing countries comes from fossil fuels, with less than 20 percent coming from renewable sources [6]. Developing countries face a significant challenge regarding renewable energy investment [7,8,9]. According to Reza et al. [10], the widespread adoption of renewable energy has been hindered by several impediments, including upfront capital requirements, a dearth of financial institutions and investors, competitive pressures from fossil fuels, and a lower level of government support compared to that of traditional fuels.

Research on the relationship between energy production and economic growth is enormous, and it has been increasing, particularly after the well-known work of Kraft [11] on the United States economy. There is a strong correlation between energy production and the supply of resources [12,13]. There are two ways to approach this: supply-side and demand-side strategies. When it comes to economic growth, supply-side analysis shows that renewable energy sources have the same impact on growth as other natural resources such as labor and capital [14]. Therefore, in the fight against global warming, the use of renewable energy sources should take precedence. The demand-side approach has shown that political considerations (policy decisions, tax, incentive schemes, R&D spending) and socioeconomic factors (earnings, CO₂ emissions, fossil fuel costs, the proportion of fossil fuels being used in energy consumption) are the primary determinants of the demand for renewable energy [12,14]. This research has expanded to many nations worldwide for several data periods with several adopted methodological techniques. The results achieved are more diverse, with a lack of conformity among researchers on the relationship and the direction of causality between the two variables in developed and developing countries [15,16,17].

Although renewable energy provides various advantages, its percentage of overall energy output is still low. Starting costs for renewable energy are high since fossil fuels are still subsidized and the complete cost of pollution is not reflected in the price of fossil fuels. In addition, energy consumption in developed countries is expanding slowly, and it takes time to modify the present energy infrastructure and energy usage patterns. Fossil fuels, on the other hand, are playing an increasingly important role in supplying the energy needs of developing countries [12,14]. Furthermore, it appears that renewable energy cannot now compete with fossil fuels in terms of cost. Consequently, governments should stimulate the development of renewable energy investments to help them realize their full potential and compete with fossil fuel technologies. The use of renewable energy sources has the potential to reduce power generating costs due to technological advancements, financial improvements, and new market entry opportunities. In coastal zones, the use of solar and wind power may currently compete against fossil fuels in terms of price, even if externalities are taken into account [18]. It is essential, given the relevance of renewable energy sources, to investigate the relationships between renewable energy and economic growth to contribute to the body of literature on energy economics and the development of a sustainable energy system. The primary objective of this review study is to fill the gap and assess the connection between renewable energy production and usage and economic growth in both developing and developed nations around the world.

2. Renewable Energy and Economic Growth

Researchers dispute the association between expanding the usage of renewable energy sources and stimulating the economy. From this perspective, Konuk et al. [19] investigated the connection between economic growth and energy use in developing countries. Their outcomes suggest that biomass energy usage and economic growth go hand in hand. The review study by Jenniches [20] also looked at the financial implications of a shift to generate renewable energy sources in the region. Determining technologies and timeframes for evaluation are critical, in his opinion. Doytch and Narayan [21,22] assessed the influence of manufacturing and service growth on the usage of non-renewable and renewable energy sources. According to their findings, high-growth industries such as the service industry in advanced economies and the manufacturing industry in developing economies benefit from renewable energy. Acheampong et al. [15] found a bi-directional causal association between renewable energy use and economic growth using the GMM-PVAR approach. Koengkan et al. [18] discovered that countries such as Venezuela and Argentina have low levels of renewable energy in their power mix. These governments saw a connection between renewable energy and fossil fuel usage as a viable solution to resource shortages.

Instead of increasing economic growth in several countries, energy conservation measures might slow it down [23]. Another study by Ivanovski et al. [24] suggested a beneficial effect of non-renewable energy on economic activity and development in OECD nations. Zebra et al. [25] investigated renewable energy systems in developing nations. Regarding renewable and non-renewable mini-grid maintenance and production, Asian developing countries surpass African countries. As mini-grid costs come down, renewable energy will become increasingly more accessible on the utility-scale. Economic growth (hurdles) and renewable energy generation are also examined in this context by researchers. It is agreed that there are technological, societal, and governmental barriers to the growth of renewable energy. However, Seetharaman et al. [26] asserted that these variables do not directly impact the results of renewable energy development. The use of renewable energy does not hamper economic growth, according to Islam et al. [27]. Despite this, it has a substantial impact on the economy. Investments in renewable and conventional energy usage have both good and negative effects on income growth, based on the beneficial impact of local and foreign investments on energy demand. The quality of the institution also affects the utilization of renewable energy. It is also negative to renewable energy consumption because urbanization has a beneficial influence on non-renewable power consumption.

To achieve faster and more spectacular economic growth, certain industrialized countries, despite their revolutionary attempts to embrace renewable energy technology, remain tied to the usage of fossil fuel alternatives [28]. Even while renewable energy has an environmental benefit, the economic peace that may be achieved with non-renewable sources of energy benefits different economies and their citizens’ way of life, but it does not benefit the environment. For industrialized countries, renewable energy consumption may not substantially affect economic growth, and several EU nations may not correlate renewable energy and economic development metrics. There has been some discussion and an uncertain economic climate, but the EU countries’ proportion of overall energy consumption is steadily increasing and is not significantly dependent on economic issues [29]. Renewable energy might have a significant economic impact if only fossil fuels were substituted. South Korea’s electricity and power generation would have to pay an additional 35 trillion KRW annually if only renewable energy sources were used [30]. Customers will be unwilling to pay for this strategy since it is impractical. According to their findings, the FDI and investments in renewable energy projects may have “economic advantages” for the region by establishing new job and training possibilities, production and linking activities, etc. Education and mobilization of the general public are also imperative for the region’s renewable energy resources to be fully utilized. According to Oluoch et al. [31], 73 percent of Kenyans highly support the development of renewable energy sources technologies, and 91 percent feel that renewable energy technologies will lower the energy generation costs in the country.

Numerous studies in theory and research suggest that the link between rising economic growth and rising energy consumption might take several different forms. Recent economic studies on renewable energy sources and long-term economic development are necessary in light of the growing public concern over the environmental harm caused by fossil fuel use. For example, the growth, conservation, feedback, and neutrality hypotheses are only a few examples of theories proposed to explain the energy consumption–economic growth connection.

Table 1. Key findings of the relationship between renewable energy and economic growth.

Authors	Period	Countries	Methodology	Main Result
Apergis and Payne [32]	1980–2006	6 Central American countries	Panel error correction model	E GDP
Menegaki [33]	1997–2007	27 European countries	Random effect model	E ≠ GDP
Apergis and Payne [34]	1990–2007	80 countries	Panel error correction model	E GDP
Vaona [35]	1861–2000	Italy	Granger causality test	E ≠ GDP
Yildirim et al. [36]	1960–2010	United States	Toda–Yamamoto causality test	E ≠ GDP
Ocal and Aslan [37]	1990–2010	Turkey	ARDL approach	GDP → E
Pao and Fu [38]	1980–2010	Brazil	Johansen co-integration test	E → GDP
Al-Mulali [39]	1990–2010	30 major nuclear energy-consuming countries	Pedroni co-integration test	E → GDP
Ozturk and Bilgili [40]	1980–2009	51 Sub-Sahara African countries	Panel co-integration analyses	E → GDP
Alper and Oguz [41]	1990–2009	New EU member countries	Causality test approach	E → GDP
Bhattacharya et al. [42]	1991–2012	38 countries	Panel co-integration test	E → GDP
Inglesi-Lotz [43]	1990–2010	OECD countries	Panel co-integration technique	E → GDP
Kahia et al. [44]	1980–2012	MENA Net Oil Importing countries	Panel error correction model	E GDP
Chen et al. [45]	1995–2015	103 countries	GMM and threshold estimation methods	E → GDP
Rahman and Velayutham [46]	1990–2014	South Asian countries	Long-run co-integration tests	E → GDP
Wang and Wang [47]	2005–2016	OECD countries	Panel threshold regression models	GDP → E
Acheampong et al. [15]	1960–2017	Sub-Saharan Africa	GMM-PVAR approach	E GDP
Armeanu et al. [48]	1990–2014	106 countries	Granger causality test	E GDP
Doytch and Narayan [22]	1984–2019	107 countries	System GMM	E → GDP
Konuk et al. [19]	1970–2017	11 developing countries	Panel causality test	E GDP
Li and Leung [49]	1985–2018	7 European countries	Panel co-integration and long-run causality	GDP → E
Namahoro et al. [50]	1980–2016	Lower and middle-income countries	CS-DL and CCEMG approaches	E → GDP
Namahoro et al. [51]	1990–2015	Rwanda	NARDL and causality tests	E → GDP
Sharma et al. [52]	1990–2016	27 European countries	Arellano–Bond dynamic panel data estimation	E → GDP
Aslan et al. [53]	1990–2015	20 countries	Panel VAR (PVAR) and Granger causality methods	RE GDP
Bulut et al. [54]	1977Q1–2019Q3	United States	Cointegration methods	E ≠ GDP
Chen et al. [16]	1996–2019	Norway, New Zealand, and 2	MS-VAR)model	GDP → E
Eyuboglu and Uzar [55]	1990–2015	15 emerging countries	Bootstrap panel causality test	E ≠ GDP
Gyimah et al. [4]	1990–2015	Ghana	Granger causality test	E GDP
Kuo et al. [56]	1995–2019	10 Asian countries	CS-ARDL approach	E → GDP
Inal et al. [8]	1990–2014	African oil-producing countries	Bootstrap panel LM co-integration	E ≠ GDP
Islam et al. [27]	1990–2019	Bangladesh	Dynamic ARDL (DARDL) model	GDP → E
Mohsin et al. [57]	1990–2018	West African States	DEA approach	E → GDP
Mukhtarov [58]	1992–2015	Azerbaijan	Toda–Yamamoto causality test	GDP → E
Murshed et al. [59]	1971–2016	Argentina	Augmented version of STIRPAT model	E GDP
Steve et al. [60]	1990–2018	Sub-Saharan Africa	Dumitrescu–Hurlin Granger causality	E → GDP
Slusarczyk et al. [61]	1991–2022	Poland and Sweden	Regression model	GDP → E
Wang et al. [17]	1997–2015	OECD countries	Panel threshold model	E → GDP
Wang et al. [62]	2002–2018	114 countries	FOLS model and threshold model.	E → GDP
Zahoor et al. [63]	1970–2016	China	Johansen co-integration test	E → GDP
Zhao et al. [64]	2003–2018	286 Chinese cities	Spatial econometric model	E ≠ GDP

E = energy, GDP = economic growth, ≠ means no relationship, means feedback relationship, → means unidirectional relationship.

presents the relationship between renewable energy utilization and economic development. Overall, this study reveals that the wide range of empirical models utilized in these investigations has resulted in inconsistent outcomes.

2.1. Growth Hypothesis

This hypothesis argues that energy use is critical to economic development and other inputs (such as technological advancement, capital investment, and labor) cannot substitute energy’s importance in the production process. According to this theory, reducing energy usage could hurt economic growth. Using panel estimation approaches for the 38 main renewable energy-producing economies from 1990 to 2012, Bhattacharya et al. [42] found that renewable energy usage has a “significant positive effect” on long-term growth in the economy in 57 percent of economies investigated. As a result, the use of renewable energy is an important factor in the development. Inglesi-Lotz [43] investigated 34 OECD countries between 1990 and 2010 using the Pedroni co-integration approach. The findings suggest that using renewable energy has a positive relationship with economic growth. Murshed et al. [59] investigated the association between renewable energy usage and economic development in Argentina from 1971 to 2016. They discovered a long-run relationship between sustainable energy and economic growth using an advanced form of the STIRPAT model. Furthermore, Wang et al. [17] investigated the causation between renewable energy utilization and economic growth using a panel of OECD countries. According to the study, renewable energy usage has a favorable influence on economic development. In addition, Zahoor et al. [63] examined the impact of clean energy investment on China’s economic growth over the period 1970–2016. They found that clean energy investment is positively associated with China’s economic growth.

2.2. Feedback Hypothesis

The feedback hypothesis demonstrates that economic development and energy use are linked reciprocally. Growth in the economy has a negative impact on energy consumption, and the decrease in energy usage has a negative impact on economic growth and its development [4]. A study by Lin and Moubarak [65] suggested that renewable energy has been linked to economic growth in China. This illustrates that China’s economic advancement is supporting the growth of the renewable sector. An investigation of the causation between renewable energy usage and economic development was performed by Rafindadi and Ozturk [66]. According to their findings, increasing the country’s reliance on renewable energy boosts the country’s economic growth by 0.2194 percent for every 1 percent rise in renewable energy consumption. Using data from 1960 to 2017, Acheampong et al. [15] found a positive feedback relationship between renewable energy consumption and economic growth in Sub-Saharan Africa. Gyimah et al. [4] investigated the direct and indirect effects of renewable energy consumption on economic growth in Ghana using the Granger causality test based on data from 1990 to 2015. The study’s findings point to a connection between growing economic activity and an increase in the use of renewable energy sources.

2.3. Conservation Hypothesis

According to the conservation theory, energy consumption is a function of economic growth, and the growth concept is absolutely at odds with this (e.g., energy consumption determines economic growth). The hypothesis of conservation has had a great deal of support in recent years. Between 1994 and 2003, Sadorsky [67] employed panel co-integration estimations for a sample of 18 emerging economies to examine the link between renewable energy use and economic growth. The results indicated that economic growth positively influences renewable energy consumption. In addition, the author reported that renewable energy consumption would surge by 3.5 percent if real GDP per capita increased by 1 percent. This means renewable power consumption will increase dramatically as emerging economies gain traction. Menyah and Wolde-Rufael [68], for example, found evidence of one-way causality between economic growth and the utilization of renewable energy in the United States. More recent studies also validated conservation theory [16,61,69].

2.4. Neutrality Hypothesis

According to the neutrality theory, there is no correlation between energy consumption and the economy’s growth. Researchers indicate that energy has little bearing on economic growth. Capital and labor are the essential components of production, while energy is an intermediate input. Despite a multitude of evidence indicating a connection between the use of renewable energy and economic growth, other investigations point out that no such relationship exists in many European countries [33]. Since renewable energy was still in its infancy in Europe during this period, Menegaki [33] proposed that the lack of correlation between GDP growth and renewable energy usage may be attributable to this early stage of development and market penetration.

Toda–Yamamoto causality tests were conducted on the US economy from 1949 to 2010 by Yildirim et al. [36]. The study supported the neutrality hypothesis: no casual association between economic growth and renewable energy use. Vaona [35] used Granger causality tests to confirm the neutrality hypothesis in Italy from 1861 to 2001. More recent studies support this hypothesis. For example, Eyuboglu and Uzar [55] discovered no causal association between renewable energy usage and economic development for a panel of 15 emerging markets from 1990 to 2015. Inal et al. [8] offered similar conclusions for the context of African oil-producing nations from 1990 to 2014. As a result, there is no convincing evidence of a relationship between higher usage of alternative energy sources and enhanced economic development in any manner or direction on this subject. Bulut et al. [54] examined the impact of renewable energy consumption on economic growth for the USA using quarterly data over the period 1977Q1–2019Q3. The results indicated that there is no cointegration between the two variables.

The G7 industrialized countries cannot ensure environmental sustainability despite their economic success. For example, Ahmad et al. [70] showed that financial globalization and eco-innovation decrease the ecological footprint, and urban areas hurt the environment because they increase carbon footprint levels. Amri [71] emphasized the interconnectedness of three parameters across various income groups of countries. Renewable energy use and GDP growth, commerce and renewable energy, trade, and economic growth were linked in all explored countries. Another study focused on renewable energy consumption, ecological footprint, and economic growth in the US. Using the ARDL model, it is possible to link an increase in renewable energy use with the reduction of environmental deterioration [72]. Using different statistical techniques, Armeanu et al. [48] examined the connections between renewable energy, distinct forms of energy, economic growth, carbon intensity, and rapid urbanization in various nations with varying income levels. They discovered that in developed countries, a co-integration exists between renewable energy consumption and carbon releases from renewable and nuclear sources. Using the Granger causality test, there is only one bidirectional causal connection between economic growth and resource consumption in developing countries. In contrast, developed countries have a bidirectional link between energy intensity and carbon emissions.

Researchers such as Hao et al. [73] employed panel data techniques to examine the consequences of green growth in G7 countries in the past 25 years. According to the conclusions of this study, environmental deterioration is affected by both short-term and long-term GDP development. Consequently, the claim that green growth improves the environment is valid. Changing CO₂, GDP, green economy, environmental regulation, renewable power consumption, or human resources in all seven G7 countries will affect the other countries.

Conversely, energy usage benefits growth in several low- and middle-income nations, whereas renewable energy sources have a negative effect [50]. Li and Leung (2021) used panel data methodologies to investigate the connection between economic growth, energy prices, and renewable energy use. They showed that increasing renewable energy requires economic growth even in countries such as the G7, whose economies are well-established. In another study, Namahoro et al. [51] showed that renewable energy positively impacts economic growth. Renewable energy use in the G7 countries benefits economic growth, and this positive association is affected by the threshold value. Thus, renewable energy’s function in promoting economic growth is non-linear. For example, renewable energy plays an essential role in fostering economic growth if EU members increase their use above a certain threshold. Concerning renewable energy consumption and economic growth, Chen et al. [45] used a threshold model in their study. These studies, which use 1995–2015 as a baseline, show that renewable energies significantly and favorably impact economic growth in OECD nations but not developed ones. When renewable energy consumption reaches a particular level in emerging and non-OECD countries, it dramatically affects economic growth. According to Sharma et al. [52], switching to renewable energy has more long-term economic benefits than short-term costs using dynamic panel data estimation.

3. Renewable Energy, Energy Consumption, and Economic Growth in Developing Countries

There is a lack of reliable, affordable, and long-lasting electrical power in rural areas of impoverished and developing countries. Due to a lack of renewable energy options, residents in these countries’ urban and rural areas must rely on fossil fuels. Bangladesh’s energy industry is still in its infancy, hindering the country from progressing economically. Sustainable development goals (SDG) can only be achieved if the proportion of renewable energy in the power mix increases and resource usage for energy production is reduced [74].

These include short-term power stations, coal-fired plant operations, and imports from surrounding nations to reduce the imbalance in supply and demand. There is still a long way to go before the country can produce and supply enough electricity. In addition, the country’s considerable use of renewable energy is hampered by growing FDI inflows linked to the energy sector. The region’s increased usage of renewable energy, particularly in Bangladesh, is also being spurred by the region’s growing economy and rising CO₂ emissions [75,76,77]. Adding tidal power, another renewable energy source, to the nation’s electrical grid could be crucial [78,79,80,81]. Alam et al. [82] suggested that Bangladesh must adopt renewable energy and demand-side treatment to reduce a detrimental influence on the country’s economy since economic development translates to higher energy usage. Nigeria, one of Africa’s most significant fossil fuel exporters, has recently confronted a considerable energy crisis. This abundant supply of waste and feedstocks could catalyze Nigeria’s economic growth in the future [83,84,85,86].

According to Ramadan [87], government subsidies for installing new renewable energy plants or reducing the financing rates enhance the economic benefits. Ghouchani et al. [88] investigated developing renewable energy in Iran. Long-run technology acquisition plans, regulatory stabilization, and “attraction of foreign investment” are all addressed in this research as potential opportunities for Iran’s energy industry. Policies most flexible to national goals, technological capacity, and economies might be considered while formulating and implementing a renewable energy policy.

Wang and Wang [89] explored the role of alternative renewable consumption on Pakistan’s GDP per capita. They concluded that economic growth is boosted by using fossil fuels. However, this is not useful in the latter phases of the industrial process. In the early phases of the manufacturing industry in Pakistan, adopting renewable energy is not economical. However, it is also good for the ecosystem later in the process. According to Irfan et al. [5], employing renewable energy does not increase Pakistan’s social development. Surprisingly, as a country’s GDP grows, so does its education level. CO₂ emissions also have a positive impact on development indicators. Furthermore, trade liberalization stifles Pakistan’s social development. The long-term feedback relationship between ecological impact and social development is supported by causality analysis [90,91].

Pumped hydro energy technology can be employed in Bangladesh, Iran, Pakistan, and Nigeria because it can swiftly handle the load and modify the frequencies to satisfy the energy system’s requirements [62]. Compared with solar energy and wind energy, although it is limited by geographical factors, it can avoid intermittent electricity generation, so the threshold conditions for use are lower.

Doytch and Narayan [19] asserted that using renewable energy boosts the economy’s growth. In South Korea, renewable energy production has economic and environmental benefits. Sim [92] and Shan et al. [93] considered the effect of green sector development and renewable energy in Turkey’s drive for emissions reduction. Renewable energy, energy use, population growth, and per capita income are all interconnected in the long run. Green technology innovations and carbon emissions are being cut, yet at the same time, global energy use, population growth, and per capita carbon emissions are all rising [94]. Nong et al. [95] examined the country’s energy policy for a contemporary period of growing development in Vietnam. It has been shown that renewable energy can offset the adverse effects of environmental challenges on social and economic well-being [37,96].

4. Conclusions

It is no longer a country-specific concern to deal with global warming, environmental degradation, and other associated challenges. The clean development mechanism entails a vast deployment of renewable energy technologies to enhance sustainable development. Energy security is quickly becoming a reality as various renewable energy supplies are exploited because of their potential for mitigating GHG emissions. As part of the UNFCCC, the Kyoto Protocol incorporates the idea of a “clean development framework”. Developed nations would contribute to emission reduction measures, which would then fund renewable energy programs in the developing world [12,14]. Increasing the usage of green technology and renewable energy sources can help address this problem. However, mass sustainable energy development faces a few obstacles, including unpredictability, input–output cost analysis, higher manufacturing costs, and a lack of knowledge and financial resources. Based on their previous studies, researchers have discovered that renewable energy sources are critical to a country’s overall growth. Developing countries must increase their reliance on renewable energy sources.

Reduced emissions can be recognized by using renewable energy and other natural resources. As a result, global monitoring of the effect of CO₂ emissions on the environment is required to assess the effects of climate change. All of these effects are weighted according to the economic situation in each country. The industrial structure is being transformed by green growth and eco-innovation [73]. Developed countries must prioritize a green growth strategy to meet sustainable development goals.

Using renewable energy systems is critical in developing countries with high renewable energy capacity. According to our findings, fossil fuels may be helpful in the early manufacturing phases but are not in the latter stages of production. However, while employing clean energy may not be favorable at the outset of expanding manufacturing activities in developing countries, its benefits extend far beyond the production stage. Policymakers should move quickly to implement comprehensive reforms in renewable energy. Globalization has urged Latin American countries to use renewable energy sources to minimize the effects of climate change [18,70]. Green energy technology development will benefit the region and the world. Policymakers should take advantage of globalization to lower renewable energy technology costs and implement regulations encouraging the usage of these technologies by low-income households. Future research may be undertaken by conducting a bibliometric and content analysis.