Abstract:
Germany is the largest economy in Europe and the leading renewable energy user comparable to none in the
entire of the European continents. It is in reference to these developments that this study investigates whether
the impacts of renewable energy have consolidated the economic growth prospects of the country. To ensure
this, quarterly time series data from 1971Q1 to 2013QIV was used. The study employed the Clemente-
Montanes-Reyes detrended structural break test, the Bayer-Hanck combined cointegration test and the ARDL
bounds testing approach to cointegration. In addition, the causality analysis was observed using VECM Granger
causality framework. The results confirmed the existence of cointegration among the variables. The results show
that renewable energy consumption in Germany consolidates the country's economic growth prospects to the
extend that a 1% increase in renewable energy consumption boosts German economic growth by 0.2194%. In
addition to that, a 1% increase in capital lead to the rise in economic growth by 1.1320%. While a 0.5125%
increase in economic growth is due to 1% increase in labor productivity. The causality analysis on the other
hand, revealed the existence of feedback effect between renewable energy consumption and economic growth.
While the relationship between renewable energy consumption and capital is found to be bidirectional and same
inference was found to exist between capital and economic growth. The study proposes solid mechanisms that
will help in averting renewable energy market failure locally and internationally among others.
