Fossil fuel curse and green transition: The role of renewable energy and green R&D

Abstract

Many researchers have documented the effects of deploying natural resources on gross domestic product (GDP) growth and confirmed the existence of the resource curse phenomenon. Furthermore, several studies have proved that factors such as institutional quality, trade openness, and commodity price volatility can alter the effects of natural resource deployment on economic growth. However, few studies have considered the effect of green transition on the resource curse. While transitioning to a green economy poses the threat of reducing the potential revenues from exporting natural resources in resource-abundant economies, it can contribute to economic growth by reducing fossil fuel dependance, increasing energy efficiency, and increasing green competitiveness. In this study, we analyze how fossil fuel rents affect GDP growth and study the interactive effects of renewable energy and investment in green research and development. By using the data of 109 countries for the period 1990–2020, we conduct a panel analysis. The results confirm the existence of the resource curse effect, whereby fossil fuel rents hinder economic growth. In addition, increasing renewable energy deployment can alleviate the adverse effects of fossil fuel rents. This mitigation can occur through a reduction in the domestic consumption of fossil fuels, increased access to international trade, and infrastructure investments. Lastly, increasing investments in green research and development mitigates the adverse effects of fossil fuel deployment. This result is achieved because of increases in energy efficiency, investment in human capital, and green competitiveness. We conclude that active green transitioning, especially in fossil-fuel-rich economies, can lead countries to sustainable growth.