Powering Industrial Growth in Kenya: The Role of Renewable Energy Generation in Manufacturing

Abstract

The growth of renewable energy is viewed as a way to support both decarbonization as well as manufacturing and industrial development, yet available empirical evidence on its sector-specific growth effects in developing economies remains scarce. This study examines the relationship between renewable energy generation and manufacturing output in Kenya using annual data from 1980 to 2023 within an autoregressive distributed lag (ARDL) framework using data from WDI and EIA. Controlling for non-renewable generation, gross capital formation, as well as labour, the bounds testing approach confirms a stable long-run relationship between renewable energy generation and manufacturing sector growth in Kenya. The results indicate that renewable energy generation exerts a positive and statistically significant lagged effect such that a 1% increase in renewable generation increases manufacturing output by approximately 0.099% in the subsequent year. However, non-renewable energy generation displays delayed contractionary effects in the long run, thus suggesting potential structural inefficiencies associated with non-renewable energy sources. Gross capital formation remains the strongest determinant of manufacturing growth, underscoring the importance of complementary investment. The error correction term of -0.763 indicates rapid adjustment toward equilibrium by correcting 76.3% of disequilibrium annually. Diagnostic and stability tests confirm model robustness. The findings suggest that aligning renewable energy expansion with manufacturing and industrial policy can boost manufacturing growth and productivity while supporting long-term energy transition objectives in Kenya and comparable emerging economies.