Assessing of the Institutional Quality Spillover Effects on Energy Efficiency in Selected Countries: Spatial Dynamic Panel Data Approach

Assessing of the Institutional Quality Spillover Effects on Energy Efficiency in Selected Countries: Spatial Dynamic Panel Data Approach



Abstract

The existing literature emphasizes the role of governance quality on energy efficiency, but we extend the present study by asking whether neighboring country’s quality of governance could also have an impact on domestic energy efficiency. Thus, with the stochastic frontier approach and spatial econometric model, we investigate the spatial effect of institutional quality on energy efficiency in a panel of 89 countries for the period 2002–2018. The results confirm the presence of spatial correlations in energy efficiency across countries. Also, in addition to the effect of institutional quality on energy efficiency, the results show that there are significant positive effects of governance spillover on energy efficiency. Our results, therefore, indicate that institutional quality matters in energy efficiency improvement and being close to countries with good institutional framework has a positive effect on domestic energy efficiency. Finally, estimates show that GDP has a positive effect, urban population and the level of industrialization have a negative effect on energy efficiency, and therefore energy efficiency, which is a global issue, can only be addressed with long-term policies that increase technological progress.



Objective: Researchers emphasize the role of governments in reducing greenhouse gas emissions, which leads to the improvement of countries' energy consumption behavior through executive policies in the field of energy and depends on government institutions. The fact that the energy sector requires capable management, direction and strong infrastructure makes the public sector an important player in this field. As a result, not considering institutional criteria and indicators does not give a complete understanding of executive policies in the field of energy in order to improve energy efficiency, because adopting a policy to strengthen and promote energy storage, or use renewable energy, are mainly political decisions, all of which They need a strong institutional framework.



Methods: In this study, the model was estimated with the stochastic frontier approach and spatial econometric model. In the current research, energy efficiency is the dependent variable that is estimated using the stochastic frontier analysis (SFA) model. For this purpose, Cobb-Douglas production function was used, which included labor, capital and energy consumption as its inputs. The explanatory variables of GDP at constant price of 2010 and in dollars, added value of services and industry sector as a percentage of GDP, urban population and governance quality variable, as an average of 6 governance quality indicators. The governance quality index was calculated using the principal component method (PCA). Data are collected from World Bank, International Energy Agency and Penn World Table for the period 2002-2020.



Goals:

The existing literature emphasizes the role of the quality of governance and institutions on energy efficiency. In this regard, the present study expands by posing the question whether the quality of governance and institutions of the neighboring country can also have an effect on domestic energy efficiency. Therefore, with the stochastic frontier approach and spatial econometric models, the spatial impact of institutional quality on energy efficiency is investigated for a country group consisting of 89 countries and for the period of 2002-2020.



Results: Our results, therefore, indicate that institutional quality matters in energy efficiency improvement and being close to countries with good institutional framework has a positive effect on domestic energy efficiency. Finally, estimates show that GDP has a positive effect, urban population and the level of industrialization have a negative effect on energy efficiency, and therefore energy efficiency, which is a global issue, can only be addressed with long-term policies that increase technological progress.







Conclusion: The obtained results confirm the existence of spatial correlations in energy efficiency across countries. Also, in addition to the effect of institutional quality on energy efficiency, the results show that there are positive and significant spillover effects of governance quality on energy efficiency. Therefore, the results show that the quality of institutions is important in improving energy efficiency and proximity to countries with good institutional framework has a positive effect on domestic energy efficiency. Finally, the estimates show that GDP has a positive effect, urban population and level of industrialization have a negative effect on energy efficiency, and hence energy efficiency, which is a global issue, can only be achieved with long-term policies that increase technological progress. can be solved. Assessing of the Institutional Quality Spillover Effects on Energy Efficiency in Selected Countries: Spatial Dynamic Panel Data Approach



Abstract

The existing literature emphasizes the role of governance quality on energy efficiency, but we extend the present study by asking whether neighboring country’s quality of governance could also have an impact on domestic energy efficiency. Thus, with the stochastic frontier approach and spatial econometric model, we investigate the spatial effect of institutional quality on energy efficiency in a panel of 89 countries for the period 2002–2018. The results confirm the presence of spatial correlations in energy efficiency across countries. Also, in addition to the effect of institutional quality on energy efficiency, the results show that there are significant positive effects of governance spillover on energy efficiency. Our results, therefore, indicate that institutional quality matters in energy efficiency improvement and being close to countries with good institutional framework has a positive effect on domestic energy efficiency. Finally, estimates show that GDP has a positive effect, urban population and the level of industrialization have a negative effect on energy efficiency, and therefore energy efficiency, which is a global issue, can only be addressed with long-term policies that increase technological progress.