How Important Is Institutional Quality To Lower Energy Utilization: An Analysis Using A Global Panel Of Stable And Unstable Countries

Efforts to lower energy intensity increased initially as a result of rising fuel prices following the first and second oil shocks, which subsequently became serious owing to mounting evidence that fossil fuels are a major cause of climate change and global warming. Energy source is a key problem associated with climate change as oil and gas, and coal constitute major components of fossil fuels. However, the extant literature remains divided on the determinants of energy intensity. Hence, using panel annual data from 84 stable and unstable countries from 1980 to 2012, this paper tested the relationship between energy intensity, and trade, FDI, urbanization, industrialization, and institutional quality. FDI in particular showed a highly significant contribution towards lowering energy-intensity, as its coefficients were negative and highly significant at 1% in all three groups of countries. However, urbanization had no impact on energy-intensity levels in all three groups of countries, while industrialization and trade exacerbated energy intensity in the global panel of countries. Whereas trade showed no relationship with energy intensity among stable and unstable countries, industrialization worsened energy intensity among stable countries. Institutional quality had a highly significant (1%) and positive impact on reducing energy intensity in all three groups of countries.