Examining the asymmetric effects of energy intensity in low‐ versus high‐income economies: New evidence using common correlated effects approach

Abstract

AbstractThis study aims to investigate the symmetric and asymmetric effects of total and renewable energy intensity on economic growth (GDP) in two panel groups classified by their income levels, namely, low‐ and lower‐middle‐income economies versus high‐income economies over 1990–2021. Heterogeneous estimators are adopted in the common correlated effects models, covering slope heterogeneity, cross‐sectional dependence and nonstationarity or cointegration (long‐run effect). New evidence is obtainable from this study because energy intensity is decomposed into its positive and negative series and incorporated into the model estimations so that the effect of its increases and decreases can be observed. Hence, our innovative models are improved and better mimic real economic situations. The results demonstrate that energy intensity and GDP are negatively correlated, and the causal effect is nonlinear or asymmetric. The effect also differs across the two panel groups. The decreases in total energy intensity (LTEI–) have a greater adverse impact on GDP than energy intensity increases (LTEI+) for low‐ and lower‐middle‐income economies. For high‐income economies, the detrimental influence of LTEI+ is more prominent than that of LTEI–. Moreover, the increases in renewable energy intensity (LREI+) also impede the GDP of high‐income economies, but with a relatively smaller impact compared to LTEI+ and LTEI–. On the contrary, the gain in GDP for both groups is driven by gross fixed capital formation although the conducive impact is rather small compared to the unfavourable effect of total energy intensity on the GDP. Besides, the labour force participation rate promotes a higher GDP in the high‐income group. Therefore, critical attention and proper energy policy formulation should be stipulated in achieving sustainable development and contributing to the Sustainable Development Goals.