Does energy diversification cause an economic slowdown? Evidence from a newly constructed energy diversification index

Abstract

This study introduces a new measure of energy diversification. We explore it's impact on economic development across the panels of low-income, high-income, European Union (EU), the Organization for Economic Cooperation and Development (OECD), and G20 countries. The study uses data from 1995 to 2018 and utilizes Nonlinear Panel Autoregressive Distributed Lag (NPARDL) method. Our findings show that the major economies (including G20) realize positive economic growth with increasing long-run energy diversification. However, some countries (e.g., OECD and G20) experience negative economic growth due to energy diversification in the short term. The results also disclose that energy diversification does not favor economic growth in low-income economies, both short and long terms. Therefore, more precautionary measures should be taken while diversifying energy sources.