The reaction of the consumption of fossil fuels to trade openness in Latin America & the Caribbean countries

Abstract

This article investigates the impact of trade openness and renewable energy on the consumption offossil fuels for a panel of fourteen LAC countries over the period from 1990 to 2014. To this end, aPARDL model in unrestricted error-correction form is estimated, and robustness checks are performedby estimating a PNARDL model. The results of the PARDL model point indicate that the impact ofeconomic growth and elasticity of trade openness are statistically significant at the 1% level andcontribute to increased consumption of fossil fuels in the LAC countries. However, the impact andelasticity of consumption of renewable energy are statistically significant at 1% and 5% levels and thuscontribute to decreasing consumption of fossil fuels. Nevertheless, the asymmetry of the impact ofconsumption of renewable energy and its elasticity decrease the consumption of fossil fuels. Therefore,the positive impact of trade openness on the consumption of fossil fuels suggests that the process ofglobalisation by trade liberalisation in the LAC countries is not sufficient to bring more investment thatencourages R&D in energy efficiency technologies, and equipment that reduces the consumption ofenergy from non-renewable energy sources by households and firms.