Forecasting the Contribution of Renewable Energy to the Indonesian Economy: A Vector Error Correction Model Approach

Muhammad Rafenza  Ramadhan; Natasya  Aprilianti; Nadila Istima  Fadil; Ahmad Tibrizi Soni  Wicaksono

doi:10.55927/ijbae.v3i6.11743

Authors

Muhammad Rafenza Ramadhan Universitas Islam Negri Maulana Malik Ibrahim Malang
Natasya Aprilianti Universitas Islam Negri Maulana Malik Ibrahim Malang
Nadila Istima Fadil Universitas Islam Negri Maulana Malik Ibrahim Malang
Ahmad Tibrizi Soni Wicaksono Universitas Islam Negri Maulana Malik Ibrahim Malang

DOI:

https://doi.org/10.55927/ijbae.v3i6.11743

Keywords:

Economic Growth, Renewable Energy Consumption, Non-Renewable Energy Consumption, Forecast

Abstract

This study aims to evaluate the causal relationship between Renewable Energy Consumption, Non-Renewable Energy Consumption, and Economic Growth. This study uses quantitative methods and analyzes data using a Granger Causality Test, Vector Error Correction Model (VECM), Impulse Response Function (IRF), and Variance Decomposition (VDC). The study was conducted in Indonesia, with data ranging from 1993 to 2022 obtained from the World Bank database and Our World in Data. The results of the study based on the Granger test show that renewable energy has a significantly positive impact on economic growth in Indonesia. According to the VECM test, renewable energy consumption contributes to increasing economic growth as a result of construction and manufacturing sector activities in the development of renewable energy in Indonesia. The government should focus on energy availability, with an emphasis on increasing the production of renewable natural resources.

Downloads

Download data is not yet available.

References

Adewuyi, A. (2020). Challenges and prospects of renewable energy in Nigeria: A case of bioethanol and biodiesel production. Energy Reports, 6, 77–88. https://doi.org/10.1016/j.egyr.2019.12.002

Alshami, M. (2023). A VAR Based Study on Energy Consumption and Economic Growth. International Journal of Energy Economics and Policy, 13(1), 317–321. https://doi.org/10.32479/ijeep.13767

Amri, F. (2017). The relationship amongst energy consumption (renewable and non-renewable), and GDP in Algeria. Renewable and Sustainable Energy Reviews, 76(March), 62–71. https://doi.org/10.1016/j.rser.2017.03.029

Aslan, A., Apergis, N., & Yildirim, S. (2014). Causality between energy consumption and GDP in the U.S.: Evidence from wavelet analysis. Frontiers in Energy, 8(1), 1–8. https://doi.org/10.1007/s11708-013-0290-6

Aswadi, K., Jamal, A., Syahnur, S., & Nasir, M. (2023). Renewable and Non-renewable Energy Consumption in Indonesia: Does it Matter for Economic Growth? International Journal of Energy Economics and Policy, 13(2), 107–116. https://doi.org/10.32479/ijeep.13900

Awodumi, O. B., & Adewuyi, A. O. (2020). The role of non-renewable energy consumption in economic growth and carbon emission: Evidence from oil producing economies in Africa. Energy Strategy Reviews, 27, 100434. https://doi.org/10.1016/j.esr.2019.100434

Bhuiyan, M. A., Zhang, Q., Khare, V., Mikhaylov, A., Pinter, G., & Huang, X. (2022). Renewable Energy Consumption and Economic Growth Nexus—A Systematic Literature Review. Frontiers in Environmental Science, 10(April), 1–21. https://doi.org/10.3389/fenvs.2022.878394

Bridle, R., Gass, P., Halimajaya, A., Lontoh, L., McCulloch, N., Petrofsky, E., & Shancez, L. (2018). Missing the 23 Per Cent Target : Roadblocks to the development of renewable energy in Indonesia. February, 1–41.

Bunnag, T. (2023). Analyzing Short-run and long-run causality relationship among CO2 emission, energy consumption, GDP, square of GDP, and foreign direct investment in environmental Kuznets Curve for Thailand. International Journal of Energy Economics and Policy, 13(2), 341–348. https://doi.org/10.32479/ijeep.14088

Derouez, F., Ifa, A., Aljughaiman, A. A., Bu Haya, M., Lutfi, A., Alrawad, M., & Bayomei, S. (2024). Energy, technology, and economic growth in Saudi Arabia: An ARDL and VECM analysis approach. Heliyon, 10(4), e26033. https://doi.org/10.1016/j.heliyon.2024.e26033

Duho, K. C. T., Abankwah, S. A., Agbozo, D. A., Yonmearu, G., Aryee, B. N. A., & Akomanin, O. (2022). Exploring the Russo-Ukrainian Crisis and Its Impact on African Countries: A Cross-Regional Analysis. SSRN Electronic Journal, April. https://doi.org/10.2139/ssrn.4085903

Handayani, K., Krozer, Y., & Filatova, T. (2019). From fossil fuels to renewables: An analysis of long-term scenarios considering technological learning. Energy Policy, 127(December 2018), 134–146. https://doi.org/10.1016/j.enpol.2018.11.045

Ilman, N. Z., & Anam, M. Z. (2023). Impact of the Russia-Ukraine war on the energy sector in southeast asia. Jurnal Inovasi Ilmu Sosial Dan Politik (JISoP), 5(1), 23–38. https://doi.org/10.33474/jisop.v5i1.18574

International Renewable Energy Agency. (2022). Indonesia energy transition outlook, International Renewable Energy Agency. In IRENA. https://doi.org/10.7551/mitpress/9780262037419.003.0003

International Renewable Energy Agency. (2023). Socio-economic footprint of the energy transition: Indonesia. www.irena.org

Iyer, S., & Mahajan, A. (2021). Granger causality analysis of deviation in total electron content during geomagnetic storms in the equatorial region. Journal of Engineering and Applied Science, 68(1), 1–25. https://doi.org/10.1186/s44147-021-00007-x

Kahia, M., Aïssa, M. S. Ben, & Lanouar, C. (2017). Renewable and non-renewable energy use - economic growth nexus: The case of MENA Net Oil Importing Countries. Renewable and Sustainable Energy Reviews, 71(December 2016), 127–140. https://doi.org/10.1016/j.rser.2017.01.010

Kementerian Energi dan Sumber Daya Mineral. (2024). Ini Target Pemerintah untuk Populasi Kendaraan Listrik di Tahun 2030. https://www.esdm.go.id/id/

Khasanah, U., Tibrizi, A., & Wicaksono, S. (2021). Intermediary performance of Islamic banks in the disruption era: Does it contribute to economic growth? Banks and Bank Systems, 16(1), 103–115. https://doi.org/10.21511/bbs.16(1).2021.10

Luqman, M., Ahmad, N., & Bakhsh, K. (2019). Nuclear energy, renewable energy and economic growth in Pakistan: Evidence from non-linear autoregressive distributed lag model. Renewable Energy, 139, 1299–1309. https://doi.org/10.1016/j.renene.2019.03.008

Madaleno, M., & Nogueira, M. C. (2023). How Renewable Energy and CO2 Emissions Contribute to Economic Growth, and Sustainability—An Extensive Analysis. Sustainability (Switzerland), 15(5), 1–15. https://doi.org/10.3390/su15054089

Mohammadi, H., Saghaian, S., & Zandi Dareh Gharibi, B. (2023). Renewable and Non-Renewable Energy Consumption and Its Impact on Economic Growth. Sustainability (Switzerland), 15(4). https://doi.org/10.3390/su15043822

Okumus, I., Guzel, A. E., & Destek, M. A. (2021). Renewable, non-renewable energy consumption and economic growth nexus in G7: fresh evidence from CS-ARDL. Environmental Science and Pollution Research, 28(40), 56595–56605. https://doi.org/10.1007/s11356-021-14618-7

Ozcan, B., & Ozturk, I. (2019). Renewable energy consumption-economic growth nexus in emerging countries: A bootstrap panel causality test. Renewable and Sustainable Energy Reviews, 104(November 2018), 30–37. https://doi.org/10.1016/j.rser.2019.01.020

Panait, M., Apostu, S. A., Vasile, V., & Vasile, R. (2022). Is energy efficiency a robust driver for the new normal development model? A Granger causality analysis. Energy Policy, 169(June), 113162. https://doi.org/10.1016/j.enpol.2022.113162

Papunen, A. (2024). Economic impact of Russia’s war on Ukraine: European Council response. European Parliamentary Research Service, December 2023.

Pegkas, P. (2020). The impact of renewable and non-renewable energy consumption on economic growth: the case of Greece. International Journal of Sustainable Energy, 39(4), 380–395. https://doi.org/10.1080/14786451.2019.1700261

Pesaran, M. H. (2004). General Diagnostic Tests for Cross Section Dependence in Panels. In Discussion Paper (No. 1240). http://www.emeraldinsight.com/loi/afr

Priyanto, A., Rachman, R., & Jaya Negara Tamansiswa Malang, S. (2022). Impact Of The Russia-Ukraine War On The Indonesian Economy Based On Data On Indonesian Imports From Ukraine And The European Union In 2010-2020. Tamansiswa Accounting Journal International ISSN, 6(1), 74–79.

Purnomo, S. D., Wani, N., Suharno, Arintoko, Sambodo, H., & Badriah, L. S. (2023). The Effect of Energy Consumption and Renewable Energy on Economic Growth in Indonesia. International Journal of Energy Economics and Policy, 13(1), 22–30. https://doi.org/10.32479/ijeep.13684

Rahman, M. M., & Velayutham, E. (2020). Renewable and non-renewable energy consumption-economic growth nexus: New evidence from South Asia. Renewable Energy, 147(2020), 399–408. https://doi.org/10.1016/j.renene.2019.09.007

Sun, Y., Usman, M., Radulescu, M., Pata, U. K., & Balsalobre-Lorente, D. (2024). New insights from the STIPART model on how environmental-related technologies, natural resources and the use of the renewable energy influence load capacity factor. Gondwana Research, 129, 398–411. https://doi.org/10.1016/j.gr.2023.05.018

Tambunan, H. B., Hakam, D. F., Prahastono, I., Pharmatrisanti, A., Purnomoadi, A. P., Aisyah, S., Wicakson, Y., & Sandy, I. G. R. (2020). The challenges and opportunities of renewable energy source (RES) penetration in Indonesia: Case study of Java-Bali power system. Energies, 13(22), 1–22. https://doi.org/10.3390/en13225903

Wahyudi, H., Ciptawaty, U., & Ratih, A. (2024). Planning and Policy Direction for Utilization of Renewable Energy in Sustainable Development in Indonesia. WSEAS Transactions on Business and Economics, 21(May), 1083–1094. https://doi.org/10.37394/23207.2024.21.90

Wicaksono, A. T. S., Mufraini, A., Miranti, T., & Muttaqien, M. K. (2023). Bitcoin Vs Gold: Which One is the Most Powerful in Boosting the Shariah Equity Index? Global Evidence. Studies in Business and Economics, 18(1), 5–36. https://doi.org/10.2478/sbe-2023-0001