Energy efficiency trends in developing countries: Are we seeing convergence or polarization?

Abstract

This study calculates the Total Factor Energy Efficiency (TFEE) of 38 developing countries from 2000 to 2021 and decomposes it into the indices of Technical Efficiency Change (TECH) and Technological Progress (TECCH). We examine the dynamic evolution and convergence characteristics of these indices. Our analysis reveals four main findings: First, TECCH has a greater impact on TFEE, but it lags behind TECH. Second, there is evidence of both σ convergence and β convergence in TFEE, TECH, and TECCH. Third, TFEE exhibits two convergence clubs, while TECH and TECCH show three convergence clubs. The study reveals significant effects of finance, international trade, and regional characteristics on the probability of club membership: credit support has a negative impact on a country joining the high energy efficiency club due to resource mismatch. Market support has no significant effect, and debt has a positive impact in all samples. In the subsample of financial market oriented countries, marketing support can effectively increase the probability. In trade, imports negatively affect the probability of a country belonging to a high efficiency club, while exports have a positive impact. The positive effect of ore and metal imports highlights the imbalance in the import structures of developing countries. Fourth, no evidence of polarization is identified. These findings suggest that energy efficiency disparities among developing countries are gradually narrowing, providing confidence in the potential for lagging countries to catch up.