Linear and nonlinear causality between renewable energy consumption and economic growth in the USA*1

This study aims to investigate Granger causality between renewable energy consumption (REC) and economic growth (EG) for USA. To accomplish this objective and to add the stronger evidence to the controversial issue, the tests were done under a new framework that embeds wavelet analysis, a novel tool, in nonlinear causality test approaches developed recently. The classical linear causality test procedure was also involved for comparison. The empirical data sources from the USA Energy Information Administration and Economist Intelligence Unit (EIU) CountryData database. Sample period is from January 1993 to October 2014. The results indicate significantly the existence of unidirectional causality from EG to REC and support the conservation hypothesis. In additional, further evidences show that the causal relationship among them is not constant and depends on the time scale or frequency ranges, and that wavelet analysis is an important aid to capture the nonlinear causality. This suggests that renewable energy limitations do not seem to damage economic growth. These results have implications of importance for research analysts as well as policy makers of energy economy.