Causality Relationship between Renewable and Non-Renewable Energy Consumption and GDP in Indonesia

Recent contributions show that the world is facing serious problems with energy depletion as a result of the unbalanced availability between finite energy resources and population growth as well as industrial growth. The available amount of finite-based energy resources was predicted to last between 30-150 years (World Resource Institute 2007). Responding to that threat, an ever-expanding research has been conducted on energy consumption and renewable energy resources, leading to a large literature on this research area. Research on the causal relationship between energy consumption and GDP has been a well established topic in the energy economics literature, yet the topic still remains debatable (Dhungel 2008). In the case of Indonesian economy, some studies have shown different results on the casual relationships between energy consumption and GDP and are mainly focusing on non-renewable energy. This paper tests the causality relationship between renewable and non-renewable energy consumption and GDP in Indonesia by applying the Toda-Yamamoto procedure as well as the Engle-Granger procedure. Two proxies of renewable energy consumption are used in this study. Granger causality is found to run only from renewable electricity consumption per capita to GDP per capita. The last part of this paper discusses the policy implications from our findings