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.
Background and Motivation
In an era where global economies are confronted with the dual challenges of climate change and socioeconomic inequality, understanding how nations converge or diverge in energy use, financial development, and income growth has become more critical than ever. While existing research has delved into income and financial convergence across regions, significant gaps remain in analysing energy diversification alongside these factors, particularly within OECD countries. Addressing this important research void, China Finance Review International (CFRI) is pleased to present the paper titled "Energy diversification, financial development and economic development: an examination of convergence in OECD countries", which investigates whether energy diversification, financial development, and per-capita income converge over time in OECD nations.
Methodology and Scope
The study employed rigorous statistical methods to analyse data from 38 OECD countries spanning 1997–2021, a period marked by rapid technological innovation and shifting energy policies. The key approaches included:
By innovatively combining these methods, the study disentangled overlapping trends and causal links, offering a holistic view of convergence dynamics.
Key Findings and Contributions
Why It Matters
This study challenges the assumption that OECD nations naturally converge toward shared development goals. Instead, it reveals a patchwork of progress, where clubs of countries advance together while others lag. Key takeaways for policymakers:
Practical Applications
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China Finance Review International
News article
Energy diversification, financial development and economic development: an examination of convergence in OECD countries
4-Mar-2025