A1943
Title: Economic diversification through renewable energy and the role of FDI
Authors: Peter Pedroni - Williams College (United States) [presenting]
Fakhri Hasanov - KAPSARC (Saudi Arabia)
Abstract: The extent to which the allocation of resources toward renewable energy production can help to diversify the nonoil sectors of economies that are specialized in petroleum and natural gas production is investigated empirically. It is done by employing a heterogeneous structural panel VAR approach to a panel of 65 countries with varying degrees of economic diversification using annual data from 2002 to 2021 on renewable energy production and various measures of diversification, including GDP net of fossil fuel production, exports net of fossil fuel exports and employment in sectors of the economy excluding fossil fuel sectors. The approach enables the estimation of dynamic diversification multipliers for these various outcome variables. Furthermore, by implementing counterfactual scenarios in the estimation of the transmission mechanisms, the important role that FDI flows in general play in enhancing the magnitudes of these multipliers is quantified by complimenting domestic investment in the renewable energy sectors. Most importantly, economic factors are also investigated that interact with these dynamic responses in order to identify policies that can serve to accentuate the diversification multipliers. Finally, it is also demonstrated how this heterogeneous structural panel VAR framework can be used to obtain enhanced estimates for individual countries that lack sufficiently long series for conventional time series analysis.
