Export Diversification and Energy Consumption Efficiency in the Light of Non-linear Evidence

We estimate the effects of export dynamics on energy consumption using a balanced panel of 95 economies and three subsamples, i.e., low- and lower-middle-income (LMEs), upper-middle-income (UMEs), and high-income (HIEs) from 1997 to 2013. We show the non-linear linkages between export diversification (ED) and energy use. More specifically, we show the inverted-U shape ED effects on energy use per output unit. This result implies the increases in energy inefficiency in the progress of diversification improvement in exports until a threshold level from which ED would help to enhance energy efficiency. Our analysis of the three subsamples shows consistent findings regarding the effects of ED across income levels. The inverted-U shape effects of ED are consistent in LMEs and UMEs, while it is ambiguous in HIEs. The results suggest that low and middle economies should diversify exports as much as possible to pass the threshold, where diversification can improve energy efficiency.