Transiting toward sustainable development: stochastic convergence of energy diversification using a newly constructed index.

Abstract

An optimal energy mix is a sine qua non for sustainable development. However, the global energy mix is sub-optimally dominated by fossils which endangers energy security and threatens the attainment of sustainable development. Understanding the convergence of energy series can assist the transition path to optimal energy mix and sustainable development. Thus, research on the convergence of several energy series has gained prominence in recent years. This study extends this important niche in the literature on the convergence of natural resources and environmental series by examining the convergence in energy diversification along several dimensions for a panel of 79 lower-middle, higher-middle, and high-income countries. As a departure from the existing studies, the study employs a novel methodology that allows abrupt or smooth changes through the Fourier approximation of smooth breaks, while including factor structures to test for the presence of unit roots in the relative energy diversification series. The results provide evidence of convergence of the energy diversification series in the majority of the considered countries, with 90% of the sample demonstrating convergence. A disaggregated country analysis was conducted and the findings show that 93% of the lower-middle-income countries are converging, while 95% of the upper-middle-income countries and 87% of the high-income countries are converging. Policy implications of the findings are also discussed.