Energy efficiency, cleaner energy and energy related prices: evidence from dynamic generalised method of moments

Abstract

Environmental degradation is one of the main concerns for the countries across the globe, where energy efficiency (E.N.E.F.) is regarded as one of the substantial remedial measures. Still, the factors affecting E.N.E.F. is not extensively explored in the empirical literature. In this sense, the current study tends to analyse the influencing factors of E.N.E.F. in case of the G7 economies throughout 1990–2020. Since this study is dealing with the panel data, therefore, various panel data specifications are used, which validates the slope heterogeneity, panel cross-section dependence (C.D.), and the existence of cointegration between E.N.E.F., economic growth, renewable energy, energy related inflation, and political risk index (P.R.I.). Due to mixed integrating order, this study employed Cross-Sectional Autoregressive Distributed Lag (C.S.-A.R.D.L.) approach, which reveals that all the variables are significant and positive factors of E.N.E.F. in both short and long-run. Also, the results reveals the convergence of model towards the equilibrium with 83.7% speed of adjustment. To tackle the panel data issues such as slope heterogeneity and C.D., this study employed Dynamic Common Correlated Effects–Generalised Method of Moment (D.C.C.E.–G.M.M.), which also indicates the positive and significance influence of the selected variables on E.N.E.F. The estimated results are validated by Augmented Mean Group (A.M.G.) estimator. Moreover, bidirectional causal nexus is found between E.N.E.F. and regressors (economic growth, renewable energy, energy related inflation, and P.R.I.). This study also provides relevant policy measures at the end.