Renewable energy development in Bangladesh: The role of oil price, macroeconomic factors and policies

This paper develops a fit-for-purpose Renewable Energy (RE) demand model to empirically examine the effects of Oil Price Shock (OPS) along with macroeconomic factors and policies in order to critically analyse how RE Development (RED) is influenced in the Bangladesh economy. We use annual data covering from 1985 to 2019 for the empirical analysis. We first check for cointegration using the Johansen-Juselius (JJ) and the Autoregressive Distributed Lag (ARDL) bounds tests and find that the concerned variables are not cointegrated in the Long-Run (LR). Therefore, we apply the Bayesian Vector Autoregression (BVAR) to investigate the Short-Run (SR) impacts. We reveal that a positive OPS increases RE Consumption (REC) with a lag effect. Moreover, positive shocks to RE Investment (REI) and Foreign Direct Investment (FDI) tend to increase REC, while a positive shock in GDP dampens REC. We recommend institutional reforms to pave the way for effective RED for the green transition in Bangladesh.