Exploring the Macroeconomic Effects of Renewable Energy in Tajikistan: An Empirical Analysis

Tajikistan holds the eighth position globally in terms of hydropower potential, estimated at 527 terawatt-hours (TWh), with a technically exploitable capacity of 317 TWh. Only 4-6 percent of this immense potential is currently utilized. In this paper, employing a combination of the Johansen cointegration test, vector autoregression, and the Granger-causality test on annual data from 1993 to 2021, we examine the causality relationship between electricity production and key macroeconomic variables, including gross domestic product (GDP), GDP per capita, exports, imports, final consumption, capital investment, and employment, in Tajikistan. The empirical findings reveal a positive unidirectional causality from electricity production to exports and imports. A positive bidirectional or feedback causality is found between electricity production and variables such as GDP, GDP per capita, final consumption, and employment. No causality relationship between electricity production and variables such as trade openness and capital investment is observed. The exploration of complex causal relationships between electricity production and key macroeconomic variables in Tajikistan, as revealed in this study, offers a modest yet meaningful addition to academic discourse. It presents insights that may inform policymakers and stakeholders, albeit with a recognition of the limitations inherent in the findings. These insights could potentially guide the formulation of sustainable development strategies and shed light on the underutilized potential of the country's hydropower resources.