Does economic complexity increase energy intensity?

Abstract

Today, many countries in the world pay special attention to energy efficiency to improve environmental quality and reduce the waste of energy resources. For this purpose, this research has investigated the economic complexity of energy intensity (EI) from 1995 to 2019 using club convergence and panel quantile regression (PQR) models. The club convergence results showed that out of 62 countries, 42 converged in energy intensity during the period. Then, using the PQR model, the determining factors of EI for these 42 countries were evaluated: economic complexity, urbanization, trade openness, industrial production, foreign direct investment, oil price, and economic growth. The result of the PQR model confirmed that economic complexity has an inverted U-shaped relationship with EI. Urbanization and foreign direct investment have a positive and increasing effect on EI. In addition, trade openness positively affects EI, mainly in the 10th and 25th quantiles. On the other hand, economic growth has a decreasing effect on EI. Moreover, industrialization and oil prices can reduce EI, particularly in the 90th quantile. Given the inverted U-shaped effect of the energy complexity on energy intensity, where the lower and higher quantiles are negative, it is advised that policymakers ought to promote the leap from lower levels of economic complexity to higher levels by reducing intermediate levels as much as possible. Policymakers should also be conscious that promoting the diffusion of economic complexity also mitigates noxious gas emissions.