Assessing the Impact of Renewable versus Fossil Fuels Energy on Economic Growth: A Meta-Analysis of the Elasticity across Development Stages

Nisan Gorgulu and Maria Vagliasindi

No 11422, Policy Research Working Paper Series from The World Bank

Abstract: This study makes a significant contribution to the expanding body of literature on the energy-growth nexus, distinguishing itself in two important ways. First, this is the first meta-analysis that systematically compares the economic growth impacts of renewable versus nonrenewable energy sources, instead of relying on aggregate energy indicators. Second, it explicitly explores the heterogeneity of these effects in the context of developing countries. These elasticities exhibit notable nonlinearity, following a U-shaped pattern across stages of development. In low-income countries, the relatively higher elasticity for both energy types likely reflects the critical need to expand access, regardless of the source. As countries move up the income ladder, the elasticity of renewables tends to decline, potentially reflecting short-term frictions and adjustments associated with the integration of intermittent sources, and comes to a plateau for high-income countries. In contrast, fossil fuels may remain essential in higher-income contexts for supporting grid stability and storage as renewable energy becomes more integrated. The findings underscore the need for customized energy policies that correspond to each country's economic development stage. In low-income countries, policies should focus on expanding access to affordable and reliable energy sources. In developed economies, policies should aim to encourage innovations in clean energy technologies and support technology transfer to developing countries, assisting them in sustainably meeting their energy requirements for economic growth.

Date: 2026-06-30
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