Renewable Energy and Economic Growth: Evidence from European Union Countries

Abstract

This study investigates the relationship between renewable energy and economic growth across European Union member countries between 2013 and 2023, considering cross-country differences. To address the mixed results in existing research, a two-step empirical approach is used. First, hierarchical cluster analysis groups EU countries based on their similar renewable energy and economic development patterns. Second, country-level linear regressions assess the connection between renewable energy and GDP. The findings reveal distinct clusters corresponding to different energy transition pathways, broadly differentiating more developed, long-standing EU Member States from catching-up, newer Member States. The regression analysis shows that the relationship between renewable energy and economic growth varies across these groups. While in some countries, renewable energy is positively associated with economic performance, in others, the relationship is weak or statistically insignificant. These results underscore the importance of tailored, context-specific energy policies. The study advocates for designing customized renewable energy strategies that align energy deployment with broader economic and institutional factors to foster sustainable growth.