Promoting economic stability: the role of renewable energy transition in mitigating global volatility

Abstract

Purpose This study aims to investigate how renewable energy consumption impacts economic risk in volatile economies, with a specific focus on the moderating effects of GDP per capita and trade openness. It further explores the nonlinear relationships between renewable energy consumption and economic risk, highlighting the role of gross domestic product per capita (GDP per capita) and trade openness in moderating these effects. Design/methodology/approach The dynamic panel threshold model (DPTM) is used to analyze data from the World Development Indicators (WDI) 2023 data set. Key variables include renewable energy share, gross domestic product per capita (GDP per capita), economic rent, trade openness and a composite economic volatility index. Quantile regression (QR) ensures robustness across different economic risk levels. Findings Trade openness significantly moderates the relationship between renewable energy consumption and economic risk. In high trade openness economies, renewable energy consumption markedly reduces economic risk. Higher GDP per capita also enhances the stabilizing effects of renewable energy. These findings highlight the importance of integrated economic policies that foster both renewable energy adoption and economic openness for sustainable development. Practical implications The findings offer policymakers insights into promoting economic stability through renewable energy investments. Policies enhancing trade openness and economic growth can significantly amplify the benefits of renewable energy, contributing to sustainable development goals. Social implications The study underscores renewable energy’s potential to foster long-term economic stability and environmental sustainability, ensuring current development does not compromise future needs. Originality/value This study advances the understanding of nonlinear relationships between renewable energy and economic risk, filling a gap in existing literature. It incorporates the moderating roles of GDP per capita and trade openness within a nonlinear framework.