Powering progress: The interplay of energy security and institutional quality in driving economic growth

Abstract

Energy security is a crucial determinant of sustainable economic growth, especially in the South Asian region, where persistent energy challenges and institutional shortcomings have stifled developmental potential. This study aims to elucidate the complex interplay between energy security and economic growth, with a focus on how institutional quality moderates and transforms these dynamics to promote more resilient growth in the region. Drawing on data from eight South Asian countries from 2000 to 2022, the study employs a panel-corrected standard error (PCSE) model, reinforced by robust feasible generalized least squares (FGLS) method. The results reveal that energy availability, energy supply capacity, energy demand, and energy efficiency exert negative impacts on economic growth, whereas energy development capacity contributes positively to economic growth. Additionally, the novel aggregate energy security index and institutional quality index demonstrate positive effects on growth, alongside urbanization and foreign direct investment. Conversely, trade openness is found to have a negative influence on economic growth. Crucially, the institutional quality index absorbs the adverse effects of energy availability, energy supply capacity, energy demand, and energy efficiency on growth, while amplifying the positive impacts of both individual elements of energy security and its aggregate index. These results highlight the necessity for urgent policy interventions to simultaneously address existing energy security and institutional quality concerns to achieve sustainable economic growth.