Abstract
This paper examines the four-way interrelationship between renewable energy, environment, foreign trade and growth using simultaneous-equation panel data models for 24 middle-and high-income countries over the period 1990-2011. Our findings show that, for the high-income countries, there is a bidirectional causality between renewable energy and growth, between CO2 emissions and economic growth, between foreign trade and growth and between renewable energy and CO2 emissions. However, there is a unidirectional causality between foreign trade and renewable energy and between emissions and trade. In the case of middle-income countries, there is also a bidirectional causality between renewable energy and growth, between CO2 emissions and growth, between trade and growth, between trade and renewable energy and between CO2 emissions and trade. On the other hand, there is a unidirectional causality, running from renewable energy to CO2 emissions. Understanding these controversial scenarios is prerequisite to reaching an international agreement on climate change in order to build sound economic policies and improving the environmental quality to sustain economic development.