Document Type : Research Paper
Authors
1 Assistant Professor, Department of Islamic Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran.
2 Master's Student in Economic Systems Planning, Faculty of Economics, Shahid Beheshti University, Tehran, Iran.
Abstract
Achieving sustainable economic growth and reducing dependence on fossil fuels are strategic priorities for Iran’s economy. Economic complexity—reflecting the technological sophistication and knowledge embedded in production—and renewable energy—supporting environmental protection and energy diversification—are both critical drivers of sustainable growth. This study examines the asymmetric and nonlinear effects of these two factors on Iran’s economic growth from 1995 to 2022 using the Nonlinear Autoregressive Distributed Lag (NARDL) model. The model distinguishes between short- and long-term impacts of positive and negative changes in each variable. Results indicate that positive shocks in renewable energy consumption and economic complexity significantly boost economic growth, while negative shocks have comparatively weaker adverse effects. Over the long term, increases in both variables contribute to growth, whereas decreases hinder it. Additionally, investment and labor positively influence economic growth, while carbon dioxide emissions exert a negative impact. The findings highlight the importance of advancing renewable energy and enhancing economic complexity as strategies to foster sustainable growth and reduce reliance on fossil fuel resources.
Introduction
Achieving sustainable economic growth and reducing dependence on fossil fuel resources are strategic objectives of Iran’s economy in the current context. Economic complexity, as an indicator of the level of technology and knowledge embedded in production, and renewable energies, as a tool to reduce environmental impacts and diversify the energy mix, both play vital roles in sustainable economic growth. This study analyzes the asymmetric and nonlinear effects of these two key variables on Iran’s economic growth over the period 1995 to 2022 using the Nonlinear Autoregressive Distributed Lag (NARDL) model. This model allows the separate examination of the positive and negative impacts of variables in the short and long run. The findings indicate that positive shocks in renewable energy consumption and economic complexity have significant and positive effects on economic growth, while negative shocks in these variables have smaller and adverse effects. In the long run, increases in renewable energy consumption and economic complexity enhance economic growth, whereas decreases reduce it. Furthermore, investment and labor have positive effects on economic growth, while carbon dioxide emissions have a negative impact. The results emphasize the importance of developing renewable energy and enhancing economic complexity in Iran. These two strategies not only strengthen economic growth but can also reduce environmental damage and the country’s reliance on fossil fuel resources.
Research Question
How do renewable energy consumption and economic complexity affect Iran's economic growth, and what is the pattern (asymmetric and nonlinear) of their impact?
Methods and Materials
This study utilizes annual time series data spanning from 1995 to 2022. The key variables include real gross domestic product (RGDP), renewable energy consumption (REC), economic complexity index (ECI), labor force (L), gross capital formation (RGCF), and carbon dioxide emissions (CO2). The econometric model is built on an augmented Cobb-Douglas production function and implemented using the Nonlinear Autoregressive Distributed Lag (NARDL) approach. This method allows the decomposition of positive and negative shocks in explanatory variables and assesses their separate effects on economic growth. The asymmetric nature of the model provides more precise insights into how increases and decreases in renewable energy and complexity impact the economy. The findings are based on rigorous testing for stationarity, cointegration, and dynamic adjustment mechanisms.
Results and Discussion
The empirical findings confirm the asymmetric effects of renewable energy consumption and economic complexity on economic growth in Iran. In the short term, positive shocks in renewable energy consumption have a statistically significant and favorable impact on growth, while negative shocks show weaker and sometimes statistically insignificant effects. Similarly, positive changes in the economic complexity index lead to higher economic growth, whereas negative deviations exert milder negative influences. In the long run, both renewable energy and economic complexity maintain strong and positive relationships with economic growth. An increase in renewable energy consumption improves sustainability by promoting green technologies and reducing fossil fuel dependency. Enhanced economic complexity fosters innovation, diversification of exports, and technological advancement, all contributing to a more resilient economic structure. Other control variables such as gross capital formation and labor force also demonstrate expected positive effects, reinforcing their roles as traditional growth factors. In contrast, CO2 emissions exhibit a significant negative relationship with economic growth, highlighting the economic costs of environmental degradation. These results suggest that the direction and magnitude of shocks in energy and complexity matter significantly, supporting the adoption of targeted policies to stimulate positive developments in these areas while mitigating potential adverse shocks.
Conclusion
This study highlights the critical roles of renewable energy consumption and economic complexity in shaping Iran’s economic growth trajectory. The use of the NARDL model enabled the identification of asymmetric responses to positive and negative shocks in both variables. The findings indicate that increases in renewable energy use and complexity drive economic growth, while their reductions have more limited adverse impacts. The results emphasize the importance of integrated economic and energy policies aimed at expanding renewable energy infrastructure and enhancing technological capabilities. Such strategies not only strengthen economic resilience and sustainability but also support environmental objectives by curbing carbon emissions and reducing fossil fuel reliance. Promoting innovation, investing in renewable sectors, and fostering complex economic activities can thus serve as complementary pillars for sustainable development in Iran.
Acknowledgments
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Keywords
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