Sustainable Economic Growth Factors in the EU: Applying a Modified Cobb-Douglas Production Function with Renewable Energy and Digitalization

Abstract

The paper utilizes the Cobb-Douglas production function with renewable energy and digitalization to estimate the sustainable economic growth factors in the EU. Neoclassical economic theory emphasizes the role of capital and labor as input variables in the output growth models, while novel growth theories are endogenous and emphasize the role of technological advances in economic development. The time frame of the research covers 2011-2021 in order to include the latest available data for all 27 EU member states economies. The research method was fixed-effects GLS regression for the panel data. This study has investigated the impact of different factors on sustainable economic growth. The paper proves that capital and labor as classical production function have a positive impact on GDP. Renewable energy development and digital economy were revealed to be drivers of sustainable economic growth. One of the policy implications is that the governments should promote renewables and digital economy with diverse range of policy instruments for sustainable economic growth promotion by decision-makers.