Does Energy Diversification Cause an Economic Slowdown? Evidence from a Newly Constructed Energy Diversification Index

23 Pages Posted: 19 Aug 2021

See all articles by Giray Gozgor

Giray Gozgor

Istanbul Medeniyet University

Sudharshan Reddy Paramati

University of Dundee

Date Written: 2021

Abstract

Countries have made considerable efforts to diversify their energy sources from fossil fuels to renewables in the last two decades to achieve sustainable economic development. However, it is widely argued that the countries may experience sluggish economic development during the energy transition period due to structural and functional changes in the economic system. Given this backdrop, this study introduces a new measure of energy diversification. It explores its impact on economic development across the panels of low-income, high-income, European Union (EU), the Organization for Economic Co-operation and Development (OECD), and G20 countries. The study uses data from 1995 to 2018 and utilizes Nonlinear Panel Autoregressive Distributed Lag (NPARDL) method. Our findings confirm that the major economies (including G20) realize positive economic growth with increasing long-run energy diversification. However, some countries (OECD and G20) experience negative economic growth due to energy diversification in the short term. The results also disclosed that energy diversification does not favor economic growth in low-income economies in both the short and long term. Therefore, more precautionary measures to be taken into account while diversifying energy sources.

JEL Classification: O470, Q010, Q420

Suggested Citation

Gozgor, Giray and Paramati, Sudharshan Reddy, Does Energy Diversification Cause an Economic Slowdown? Evidence from a Newly Constructed Energy Diversification Index (2021). CESifo Working Paper No. 9247, Available at SSRN: https://ssrn.com/abstract=3907730 or http://dx.doi.org/10.2139/ssrn.3907730

Giray Gozgor (Contact Author)

Istanbul Medeniyet University ( email )

D-100 Karayolu
Merdivenkoy Mevkii No:6/1 Goztepe/Kadıkoy
Istanbul
Turkey

Sudharshan Reddy Paramati

University of Dundee ( email )

Dundee, Scotland DD1 4HN
United Kingdom

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