Energy transition, economic growth and sustainability in Germany: Evidence from a VECM analysis (2000–2023)

The accelerating transition toward low-carbon energy systems, combined with rapid digitalization of production and infrastructure, is fundamentally reshaping the traditional energy–economy nexus in advanced economies. Understanding how electricity consumption (EC), fossil fuels (FU), renewable energy (RE), foreign direct investment (FDI), GDP, and trade openness (TO) interact under these conditions has become a critical issue for designing effective sustainability policies. Germany provides an ideal case due to its long-standing Energiewende strategy and its leadership in integrating RE with advanced technological systems. This study examines these relationships using annual data from 2000 to 2023 within a multivariate framework. The baseline model employs a Vector Error Correction Model (VECM), justified by Johansen cointegration results, to capture both long-run equilibrium relationships and short-run dynamic adjustments among variables. To ensure robustness, alternative specifications are implemented, including different lag structures, residual diagnostic tests, and stability checks (CUSUM and CUSUMSQ), confirming the consistency and reliability of the estimated relationships. The empirical results reveal a stable long-run equilibrium in which RE has a positive elasticity with respect to GDP (≈0.28–0.31), while FU consumption exerts a negative effect (≈−0.24), indicating a structural shift toward cleaner energy sources. EC remains positively associated with economic growth (≈0.35–0.40), reflecting continued dependence on energy for production despite efficiency gains. FDI significantly promotes RE expansion, highlighting its role in facilitating technology transfer and green investment. Short-run dynamics and impulse responses further show that shocks to RE reduce FF use and contribute positively to economic performance. These findings lead to several specific policy implications. First, maintaining stable and long-term RE support mechanisms—such as auction-based pricing and grid integration incentives—is essential to sustain its positive contribution to economic growth (EG). Second, targeted policies to attract green-oriented FDI, including tax incentives and regulatory certainty, can accelerate RE deployment. Third, investment in smart grids and energy storage systems is necessary to manage the increasing variability associated with RE expansion. Finally, aligning trade policy with environmental standards can enhance Germany's competitiveness in global green value chains while supporting its decarbonization goals. In general, the study provides new evidence on how technological transformation and energy transition jointly influence macroeconomic performance, offering policy-relevant insights for countries pursuing sustainable development in the era of digital and energy system integration.