In recent decades, the Gulf Cooperation Council (GCC) countries have witnessed an unprecedented surge in energy consumption, fueling their ambitious drives toward economic prosperity. While the interconnectedness of energy usage and economic growth has long been assumed, the intricate dynamics underpinning these relationships within the GCC remain inadequately understood. A groundbreaking new study employing the Cobb-Douglas production function offers a comprehensive investigation into how renewable and non-renewable energy sources distinctly influence economic development across these oil-rich nations, filling a critical knowledge gap with regional specificity and methodological innovation.
The GCC states, endowed with vast reserves of fossil fuels and expanding renewable capacities, are at a pivotal juncture in the global energy transition. Despite global momentum advocating renewable sources, the GCC’s unique energy profile demands a nuanced understanding of how different fuel types—including natural gas, oil, coal, and renewables—interact with economic variables. By disaggregating non-renewable sources and contrasting them with renewable energy consumption, the research unearths differentiated pathways through which energy inputs stimulate or hinder economic expansion, challenging one-size-fits-all assumptions prevalent in prior energy-growth inquiries.
Methodologically, the study distinguishes itself by adopting advanced econometric frameworks that account for interdependencies between countries and heterogeneous impacts over time. Unlike conventional analyses that often presume homogeneous slope coefficients and independence of residuals across units, the research incorporates Feasible Generalized Least Squares (FGLS) and Panel Corrected Standard Errors (PCSE) models. These refinements ensure robust estimations by addressing cross-sectional correlations and varying coefficients, thereby enhancing the reliability of inferred causality and long-run effects for policymakers navigating complex energy environments.
Long-term parameter estimates reveal compelling contrasts among fuel types. Natural gas consumption emerges as a potent driver of economic growth, with an estimated elasticity exceeding 0.40 percent—indicating that a one-percent increase in natural gas use correlates with a 0.4013 percent rise in GDP. Oil consumption similarly exhibits a significant positive relationship, albeit of slightly lower magnitude. This affirms these hydrocarbons remain central to economic expansion within GCC countries. Conversely, coal consumption, though present, manifests an insignificant negative trend, suggesting its relatively diminished role or inefficiencies in catalyzing growth in this region.
Renewable energy consumption, although currently contributing a smaller share, displays an encouraging positive association with economic growth. The elasticity estimate near 0.76 percent positions renewables as a promising sector whose enhancement could deliver sustainable growth dividends over time. However, statistical analyses detect no causal linkage flowing between renewable consumption and economic output, characterizing this relationship as one of neutrality rather than direct stimulus—a nuance often overlooked in broader global energy narratives.
The study’s causality findings further enrich the discourse. Coal and natural gas consumption share a unidirectional causal run from economic growth to energy consumption, embodying the “conservation hypothesis,” implying energy usage responds to economic activity rather than driving it. Oil consumption, on the other hand, aligns with the “growth hypothesis,” exhibiting causality from energy consumption toward economic growth, underscoring oil’s pivotal role as an economic engine. Renewable energy’s neutrality suggests its growth trajectory may precede or follow economic expansion, necessitating more targeted policies to convert this potential into tangible economic gains.
From a policy perspective, these insights advocate a recalibrated approach that balances leveraging abundant hydrocarbon resources with strategic investments in renewables and energy efficiency technologies. The evidence endorses a focused expansion of oil and natural gas exploitation to sustain growth momentum, tempered with efforts to enhance energy productivity—optimizing output while minimizing wastage and environmental impact. Policymakers are prompted to pivot decisively away from coal, whose diminishing returns and environmental costs undercut sustainable development goals in the GCC context.
The GCC’s abundant natural endowments in renewable energy, particularly solar irradiance, offer an untapped reservoir for future-proofing economic growth. Solar radiation in the region averages approximately 2200 kWh(th)/m² annually—surpassing renowned solar-rich countries like Spain by nearly 40 percent. This exceptional geographic advantage positions solar energy as a cornerstone upon which GCC states can construct resilient, environmentally sound economies. Harnessing this potential through accelerated deployment of solar and wind technologies is not merely an environmental imperative but a strategic economic investment aligned with regional strengths.
While global energy debates often prioritize environmental drawbacks of fossil fuel reliance, this study underscores pragmatic strategies blending economic and environmental objectives through energy efficiency enhancement. Given fossil fuels still constitute about 80 to 99 percent of total energy consumption in GCC countries—figures exemplified by 91.51% in the UAE and upwards of 95% in Kuwait and Bahrain—incremental gains in energy productivity could substantially mitigate environmental degradation while maintaining vital economic stimuli.
A critical dimension emerging from the research is the call for economic diversification alongside energy transitions. Heavy dependence on oil, though currently beneficial for growth, poses long-term risks amid fluctuating global markets and evolving climate policies. Diversifying industrial bases and broadening energy mixes beyond hydrocarbons can insulate GCC economies from external shocks and foster sustained development. Simultaneously, augmenting human capital via education and vocational training emerges as an essential complement, amplifying the positive relationship observed between labor inputs and economic output.
The negative yet significant impact of capital investment detected in the analysis invites further exploration. It suggests that mere increases in physical capital without efficiency gains or complementary factors may not proportionally translate into economic growth in these contexts. This finding challenges simplistic capital accumulation assumptions and emphasizes the necessity of optimizing capital utilization within energy-intensive industries.
Robustness checks incorporating alternative modeling approaches—including PCSEs and Panel Generalized Method of Moments (PGMM)—corroborate the study’s results, reinforcing the credibility of policy recommendations. These methodological validations highlight the rigor and analytical depth underlying the conclusions, equipping decision-makers with confidence in applying findings to real-world contexts.
Concluding, this pioneering research offers a timely, data-driven blueprint tailored to the GCC region’s unique energy and economic landscapes. Its revelations beckon policymakers to harness natural gas and oil strategically, migrate toward expansive renewable harnessing, strengthen energy efficiency frameworks, and diversify economic pillars for resilient progress. In doing so, GCC nations can reconcile their development ambitions with the imperatives of sustainability, innovation, and global energy transitions.
This study exemplifies how rigorous, region-specific analytical frameworks can unravel complex interdependencies in energy economics. It shifts the narrative from generalized global prescriptions to sophisticated, context-sensitive strategies—elements crucial for effectively navigating the intricate energy-growth nexus in resource-rich, rapidly evolving economies. As the GCC charts its next chapters in economic and energy policy, such evidence-based insights will serve as indispensable guides toward a prosperous, sustainable future.
Subject of Research: Examination of the relationship between renewable and disaggregated non-renewable energy consumption and economic growth in Gulf Cooperation Council (GCC) countries.
Article Title: Nexus between renewable-disaggregated non-renewable energy consumption and economic growth in GCC countries: a Cobb-Douglas production function analysis.
Article References:
Amer, E.A.A.A., Xiuwu, Z., Meyad, E.M.A. et al. Nexus between renewable-disaggregated non-renewable energy consumption and economic growth in GCC countries: a Cobb-Douglas production function analysis. Humanit Soc Sci Commun 12, 1097 (2025). https://doi.org/10.1057/s41599-025-05041-1
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