fbpx Time-Varying Interactions between Geopolitical Risks and Renewable Energy Consumption | Asian Development Bank

At the forefront of growth and development in Asia and the Pacific

Time-Varying Interactions between Geopolitical Risks and Renewable Energy Consumption

Publication | March 2020
Time-Varying Interactions between Geopolitical Risks  and Renewable Energy Consumption

Renewable energy is a useful tool to reduce geopolitical risks.

We utilize a time-varying parameter Bayesian vector autoregressive model to investigate the dynamic interactions between geopolitical risk (GPR) and renewable energy consumption growth (RECG). The identification strategy is flexible to accommodate cases both with and without sign restrictions. It is shown that GPR shocks have positive impacts on RECG over time. In contrast, RECG shocks decrease GPR in the whole sample period. These results show that renewable energy is a useful tool to reduce geopolitical risks. Meanwhile, the increasing geopolitical risks tend to augment renewable energy consumption. We also provide the responses at different time horizons and during particular geopolitical events. The estimating results are robust when industrial production growth is used as a control variable. Last, we discuss several implications for economic policy making.

WORKING PAPER NO: 1089