Trade Liberalization Policies and Renewable Energy Transition in Low and Middle-Income Countries? An Instrumental Variable Approach

A transition from the traditional dependence on use of non-renewable energy to the relatively environment-friendly renewable energy resources has been a key national agenda of governments across the globe. Keeping the environmental degradation and sustainable supply of energy into cognisance, it is pertinent to address the factors that possibly facilitate the renewable energy transitions worldwide. Against this backdrop, this paper aims to empirically analyse the compatibility of national trade liberalization policies with regards to promoting greater use of renewable energy across 71 low, lower-middle and upper-middle countries from South Asia, East Asia, Pacific, Central Asia, Latin America, Caribbean islands and Sub-Saharan Africa. Annual panel data between 2000 and 2017 is incorporated into the regression analyses using the Instrumental Variable Two-Stage Least Squares (IV-2SLS) and the Instrumental Variable Random Effects Generalized Least Squares (IV-RE-GLS) panel data estimators. The results indicate that greater openness to trade stimulates renewable energy consumption and also enhances the intensities of energy usage within the low and upper-middle income economies only. However, despite these upward pressures, trade openness does not guarantee higher shares of renewable energy use in the total energy consumption within these nations. Thus, the alignment of the trade liberalization policies in these countries with respect to attainment of the renewable energy transition can broadly be questioned. Furthermore, the results also indicate that trade liberalization within the lower middle-income countries is useful only in terms of enhancing the access to clean fuels and technology for cooking. The results, in a nutshell, imply that the impacts of trade liberalization on facilitation of renewable energy transition are large offset by other factors that trigger greater use of the non-renewable energy resources in these countries.