The Impact of Governmental Energy Research and Development Investments on Economic Growth - A Structural VAR Analysis for Germany

Sammanfattning: Germany exhibits one of the world's largest governmental budgets for supporting the energy transition through direct policy tools, such as R&D investments. While governmental investments in the German renewable energy sector are commonly rationalised against the background of reducing CO2 emissions and ensuring energy security, economic implications have received less attention. Next to identifying the importance of the economic impact of governmental R&D investments to provide justification for the allocation of public financial resources, we contribute to existing literature by determining the impact of renewable and fossil fuel energy R&D investments on economic growth in a structural Vector Autoregressive Model. Using impulse response functions and forward error variance decompositions, we find a significant negative impact of renewable energy R&D on economic growth, which is transmitted through the channels capital and price. No significant impact of a shock in fossil fuel R&D on economic growth has been observed. The results are robust to various sensitivity checks and we additionally extend our model by analysing the effectiveness of governmental R&D investments in changing the energy consumption mix. The results provide evidence for an adverse effect of fossil fuel R&D on renewable energy consumption and a positive impact of renewable energy R&D on both forms of energy consumption. The underlying estimation of the economic impact of governmental energy R&D in this study provides key insights for the policy design in the German energy sector.