Evaluating the mediating role of energy subsidies on social well-being and energy poverty alleviation in Bangladesh

Abstract

Energy subsidies are a widespread policy instrument employed by national governments to regulate the mechanism of energy resource allocation in contemporary market economies. The economic impact of these subsidies has been quantitatively evaluated for various nations in the literature using different approaches. However, the impact of energy subsidies on social wellbeing tracked by looking at school drop-out, health status, and earning capacity through mediating effects of energy poverty employing mediation analysis using household-level data is rarely investigated, particularly for energy-poor countries. Thus, by employing mediation analysis with data from three waves of the national Household Income and Expenditure Survey (HIES) of Bangladesh for the years 2005, 2010, and 2016, this study intends to reveal the mediating effects of energy subsidies on social wellbeing via energy poverty. The results obtained utilizing a mixed-effect regression approach suggest that energy subsidies and energy poverty are significantly linked, and energy subsidies improve social wellbeing by mediating effects of energy poverty. This finding is robust to alternative ways of addressing endogeneity using Lewbel's two-stage least squares (2SLS) method. Additionally, the richer households realize better social wellbeing and have less energy poverty, gaining more than other households from energy subsidies. The policy relevance of this paper advocates further innovation in energy subsidy reforms in energy-poor countries for combating energy poverty and ensuring clean, sustainable, and affordable energy for all in line with the aims of the sustainable development goals (SDGs) 7, affordable and clean energy.