Energy diversification, financial development and economic development: an examination of convergence in OECD countries

Abstract

Purpose: This study examines the convergence of energy diversification, financial development and per-capita income in OECD countries. Design/methodology/approach: The research employs the club convergence test to assess convergence among OECD countries and uses Granger causality tests and panel regressions to identify the determinants of convergence, using data from 1997 to 2021. Findings: The convergence tests showed no overall convergence but revealed convergence clubs for each factor. Granger causality tests indicated short-run bi-directional relationships between the variables. Long-run panel regression analysis confirmed that technological progress significantly improves per capita income and energy diversification. Additionally, it revealed bi-directional relationships between energy diversification and financial development, a uni-directional relationship from financial development to per capita income and a U-shaped effect of per capita income on energy diversification, with a turning point at $67,112.8 per year. Practical implications: The findings suggest that within each convergence club, implementing microeconomic incentives for technology development and diffusion in energy, production and financial services could help lagging countries catch up. Originality/value: This study pioneers the testing of convergence in energy diversification, financial development and per capita income in OECD countries and identifies the determinants of this convergence.