Today, rising concerns about the continuity of manufactured goods production, coupled with the need to preserve the environment, are leading the world's policymakers to shift radically towards energy sources that can integrate these new societal goals (UNIDO, 2018). In contrast to traditional biophysical economics, an emerging literature argues that renewable energy is the fuel for technically efficient manufacturing in the long run. Xingang and Zhen (2018), for example, believe that the use of renewable energy guarantees continuity of production because of its natural regenerative ability. Similarly, Yang and Zhang (2014) use the life-cycle theory of investment to show that in the long run, renewable energy prices will tend to fall, and that this would make renewable energy the main factor for sustainable production maximisation (Shi and Jin, 2011; Joskow and Wolfram, 2012; Jessoe and Rapson, 2014; Hashmi et al., 2015; Shin et al., 2016; Gerarden et al., 2017).
Renewable energy would indirectly and positively affect the technical efficiency of firms, through regulations promoting energy efficiency. Such regulation largely promotes renewable energy through the concern to preserve the environment (Averch and Johnson, 1962; Porter and Van Der Linde, 1995; Santosh and Narayanan, 2016). According to Porter's hypothesis, the use of renewable energy is a veritable eco-efficient initiative. It is part of what Hart (1995) calls the resource approach of firm performance. This approach makes the use of renewable energy a key element in the strategy of sustainable maximisation of production by firms. In addition, this approach not only minimises the amount of energy used in production, but also minimises the cost of production by maintaining the same level of output (Porter, 1991; Hart, 1995; Russo and Fouts, 1997; Amara et al., 1999; Boiral, 2005). The use of renewable energy thus appears to be a factor of competitiveness for firms. Renewable energy could contribute to firms' technical efficiency because of the special relationship it has with environmentally efficient technologies (Freeman, 1982; Coombs et al., 1987; Njomgang, 2009).
The empirical literature on the link between renewable energy and firm efficiency remains scarce in developing countries. The works available focus generally on the relationship between fossil energy, i.e., non-renewable energy, and firm efficiency. A first group of authors have worked on the energy-efficiency link of production units. In particular, they constructed an efficiency index for production units. They then linked this index to factors that could determine this same performance criterion. In most cases, energy appeared among the determinants. However, the energy in question is non-renewable. These studies are often carried out using a simple regression model, or a multiple regression. The results in some cases show a positive long-run relationship between non-renewable energy and efficiency, or a negative one, mostly in the case where the energy used is renewable. Examples include: Ang, 2004; Fisher-Vanden et al, 2006; Mairet and Decellas, 2009 and Atalla and Bean, 2017. Despite the interest of these studies related to their variables of interest, they leave out the analysis of efficiency in causal relation with renewable energy.
A second group of authors deal with the energy-productivity link by using frontier methods as an econometric analysis tool. Some use DEA methods, while others use the stochastic frontier analysis method.
For example, a group of authors tried to apply the DEA method in the field of energy economics. They worked on the efficiency of energy use for complex production processes. Song et al (2013) analyse the efficiency of energy use in the production processes of selected industries in China. Nabavi-Pelesaraei et al (2014) study the process for optimal energy allocation for a group of orange producing firms. Wang and Wei (2014) study the process of energy allocation in some industrial groups in China. Nazarko and Chodakowska (2017) identify energy in general as one of the factors that determine the technical efficiency of firms in the construction industry in Europe. Wu et al (2015) conducted a comprehensive study of the technical efficiency of firms in a group of companies in China. At the end, they identify energy efficiency as one of the main factors that determine this economic performance criterion. Geng et al (2017) studied the factors that determine the technical and environmental efficiency of industries in China. They conclude that energy contributes positively to technical efficiency and negatively to environmental performance in these industries. Guo et al (2017) used a slacks-based method to study the process of optimal energy allocation in selected regional industries in China. Their study is an extension of the premise that optimal energy allocation is one of the major determinants of firms' productive efficiency. Halkos and Polemis (2018) used a hybrid window DEA model to show that electricity is among the main determinants of the efficiency of industrial firms in the US.
Lai and Kumbhakar (2019) investigate the determinants of technical and allocative efficiency using a stochastic frontier model on panel data. Energy appears to be one of the key determinants. Kumbhakar and Tsionas (2020) decompose the technical inefficiency of a group of firms, using a generalized stochastic frontier model. As in previous studies, energy appears to be one of the factors that determine the technical efficiency studied. More recently, Kumbhakar and Tsionas (2021) have estimated the different costs associated with technical and allocative efficiencies in industries. They use the stochastic frontier method for this purpose. According to these authors, the cost associated with the energy factor is among the highest. This makes energy one of the most significant factors in determining the technical and allocative efficiency of these firms.
Despite the different interests that can be recognised in these respective studies, especially considering the newsworthiness and relevance of the energy issue, the main criticism that is made of them remains a globalised treatment of the energy variable. None of them directly assesses the effect of renewable energy on efficiency. This is despite the fact that this form of energy is the subject of most of the recommendations made by policy makers at the international level.
The objective of this paper is to identify the effect of renewable energy on the technical efficiency of manufacturing firms in Cameroon. The contribution of this paper lies in assessing the effect of renewable energy on the efficiency of manufacturing firms, an aspect not yet developed in the available empirical literature.
This paper is interesting for at least three reasons. First, it directly addresses the relationship between renewable energy and technical efficiency, which is very often avoided in the literature. Second, it uses a method that has not been used to date to analyse the causality between these two variables. Finally, the results obtained at the end of this paper can contribute to the debate on the energy transition in the specific case of Cameroon.
The rest of the paper is organised as follows: Section 2 presents the performance of manufacturing firms, together with the main trends in renewable energy consumption in Cameroon. Section 3 provides a brief methodological overview, while Section 4 comments on the results obtained, to conclude the paper in Section 5.