Can Renewable Energy Mitigate Inflationary Pressures from Energy Imports? Evidence from Turkiye

TL;DR

This paper investigates how renewable energy can help reduce inflation caused by energy imports in Turkiye, using extensive econometric analysis of data from 1980 to 2022.

Contribution

It provides empirical evidence that renewable energy significantly mitigates inflationary pressures from energy imports, with robust results across multiple econometric methods.

Findings

Renewable energy reduces inflationary pressures from energy imports.

Energy imports and exchange rate increase inflation.

Interaction of renewable energy with imports lessens inflation impact.

Abstract

This study analyses the potential of renewable energy to reduce inflationary pressures arising from energy imports in Turkiye. Annual data for the period 1980-2022 are used in the analysis. In this study, unit root properties are examined using the Zivot-Andrews and Lee-Strazicich tests, both of which explicitly account for structural breaks. Cointegration is investigated via the Johansen and Hatemi-J cointegration tests. Long-run coefficients are subsequently estimated using the DOLS and FMOLS estimators. The robustness of the empirical findings is further assessed using the ARDL approach. In addition, an interaction term is constructed to measure the impact of renewable energy in alleviating inflationary pressures arising from energy imports. The results show that energy imports and exchange rate have an increasing impact on inflation, while renewable energy and the interaction term have a decreasing impact. DOLS, FMOLS, and ARDL results support each other. Moreover, in both models, the impact of renewable energy in mitigating inflationary pressures stemming from energy imports is stronger than the direct disinflationary impact of renewable energy.