The Impact of Renewable Energy Consumption on Unemployment Rate: A Case Study for OECD Countries

Abstract

Purpose –Even though, there are a lot of studies investigating the impact of renewable energy on macroeconomic variables such as economic growth, Gross Domestic Product (GDP), income distribution; there is only a hand full of studies investigates the effect of renewable energy on unemployment rate empirically. Furthermore, the net effect of renewable energy consumption on unemployment rate still stays as a debate in the literature and there is no a common agreement among the researchers. Therefore, the main objective of this study is to analyze the impact of renewable energy consumption on unemployment rate in 36 OECD countries for the period 2002-2014. Design/methodology/approach - This study employs Fixed Effect (FE) panel model that omits the individual effect from regression and Random Effect (RE) panel model that assumes that individual effect is not correlated with explanatory variables to measure the effect of renewable energy consumption on unemployment rate. Alongside the main explanatory variable renewable energy consumption, study also employs other control variables such as Gross Domestic Product (GDP), Growth, Inflation, Human Capital, Investment, Openess, Foreign Direct Investment (FDI) and Exchange rate. Low standard deviation of renewable energy consumption variable means that country group in the analysis has similar renewable energy consumption level. Findings – This study empirically proves that renewable energy consumption has power to reduce unemployment rate. With respect to control variables; While GDP, Gross Capital Formation (investment), Openness and Foreign Direct Investment (FDI) are negatively correlated with unemployment rate, Human Capital and Exchange Rate are positively correlated with unemployment rate. Discussion – Renewable energy does not only necessitate high cost investments but also it necessitates technological infrastructure. Thus, Research and Developments (R&D) activities and investments devoted to the renewable energy sources should be supported by government incentives in this OECD country group in the analysis.