How does institutional quality determine energy consumption? Empirical evidence from the South Asia region

Abstract

Purpose Due to an increase in energy demands, it has become vital to devise efficient energy policies. Literature has suggested multiple factors influencing the consumption of specific energy types. Among others, institutional quality (INQ) is another factor that can determine energy consumption. Given this, the current study aimed to investigate the impact of INQ on fossil fuel energy (FFE) and renewable energy consumption (REC).Design/methodology/approach The empirical analysis was conducted on 20 years (2000–2019) of data from South Asian economies, and regression among variables was established by employing the dynamic ordinary least square and fully modified ordinary least square models. The selection of both techniques is subject to the existence of cointegration identified by the Johansen cointegration test. Other pre-estimation techniques include cross-section dependence and unit root testing validating the estimation of coefficients in the long run.Findings The analysis mainly reveals the negative impact of INQ on FFE and the positive impact of INQ on REC. The authors further find the asymmetric impact of control variables including foreign direct investment inflow, economic growth, inflation rate, financial sector development and energy investment on the consumption of both types of energy.Research limitations/implications Given the positive influence of INQ on REC, it is recommended to focus on improving the efficiency of institutions specifically those that are directly linked with energy-related policies. A better INQ can ensure environmental sustainability by enhancing the consumption of renewable energy. Therefore, it is advised to exert more efforts to improve the INQ.Practical implications In view of the positive influence of INQ on REC, it is recommended to focus on improving the efficiency of institutions specifically that are directly linked with energy-related policies. A better INQ can ensure environmental sustainability by enhancing the consumption of renewable energy. Therefore, it is advised to exert more efforts for improving the INQ.Originality/value This study offers robustness to the empirical findings of existing literature on the INQ-REC nexus and complements the underdeveloped literature on the INQ-FFE relationship.