The effect of export composition on energy demand: A fresh evidence in the context of economic complexity

Abstract

Energy is pivotal for sustainable economic growth. Undoubtedly, the role of the composition of the export basket (measured as economic complexity) is one of the crucial variables influencing energy consumption. Despite its importance, the existing body of literature does not intensively study the relationship between economic complexity and total energy consumption. Therefore, this study's primary aim was to examine the effect of economic complexity on energy consumption in a case study of 21 developed and 44 developing countries for the period 1971–2014. In this context, economic complexity expresses the level of sophistication of a country's export basket. This paper considers energy prices and income as explanatory variables in Durbin‐H panel cointegration analysis and applies a cointegration test with structural breaks to check for the long‐run relationships. For the long‐run estimations, we employ the augmented mean group method and dynamic seemingly unrelated regression. The findings reveal that economic complexity increases energy consumption in developing countries while it decreases energy consumption in developed countries. This is an important insight for countries concerned about their energy dependence. The diversification of their production and export baskets can reduce energy needs. The paper finally presents policy recommendations based on the empirical estimates.

Towards sustainable development in the European Union countries: Does economic complexity affect renewable and non‐renewable energy consumption?

“…Their findings reveal that economic complexity has a mitigating role in energy consumption. Over the period 1971–2014, Can et al (2022) tested the impact of economic complexity on total energy consumption for both developed and developing countries. The outcomes of their findings indicate that economic complexity boosts energy consumption in developing nations while it lessens energy use in developed nations.…”

Does global value chain participation boost high technology exports?

“…In general, export basket or complexity would arguably reflect the technological capacity or advancement of a country (Can et al, 2022; Hausmann et al, 2007). In other words, if a country has a high‐technological capacity, then it might heavily engage in export of high‐tech goods.…”

Understanding Economic Processes Through the Lens of Econometric Methods

“…If after using the method of dependency equations it was not possible to select a function, then an assumption can be made about a decrease in the level of relationship between indicators of the state of the national economy, which may indicate the presence of a hidden economic crisis, the consequences of which may be: a critical decline in production, lack of demand for goods within the country, an increase in the number of unemployed, a gradual depreciation of the national currency, and so on. Thus, by comparing the results obtained and official forecast data, the authors provide the following recommendations for a possible increase in the effec- tiveness of forecasting macroeconomic indicators of the state of the national economy: first, it is advisable to take into account the strength of the relationships between the components of the subsystem during forecasting, or the dynamics of indicators of the national economy; secondly, on the basis of certain relationships (multiple and single-factor dependency equations) to develop scientifically based "mapsschemes", taking into account the results of which can improve the quality of forecasting the state of indicators of the national economy, the authors of this study are convinced that the use of "maps-schemes" relationships data in methodically-predictive devices of state forecasting will significantly improve the efficiency of distribution and use of financial resources (Can et al, 2022).…”