Shock effects of institutional quality, green technologies, and natural resources on Algeria's energy diversification

Algeria's hydrocarbon-dependent economy faces significant challenges in diversifying its energy mix to achieve sustainability and reduce vulnerability to global energy market fluctuations. Despite abundant natural resources, the country's heavy reliance on fossil fuels has hindered progress toward energy diversification, as measured by the energy diversification index. This study investigates the asymmetric impacts of institutional quality, green technologies, and natural resources on Algeria's energy diversification from 1995/Q1 to 2022/Q4, addressing a critical literature gap. Using the Fourier nonlinear autoregressive distributed lag model, the study explores long-term equilibrium relationships and asymmetric dynamics between these variables and energy diversification. The analysis reveals that positive shocks in institutional quality lead to substantial increases in energy diversification, underscoring strong governance's crucial role in promoting energy transitions. Conversely, negative institutional shocks significantly reduce energy diversification, highlighting the detrimental effects of declining governance quality. Similarly, positive green technology shocks enhance energy diversification, while negative shocks diminish it. Natural resources exhibit dual effects: positive shocks result in modest energy diversification increases, suggesting resource revenues can support renewable projects; however, negative shocks lead to decreases, emphasizing fiscal volatility's destabilizing impact on energy diversification. These findings confirm asymmetric relationships, as positive and negative shocks significantly influence Algeria's energy diversification differently. Policy implications underscore the need for continuous governance reforms, enhanced anti-corruption measures, and transparent regulatory frameworks to attract renewable energy investments. Strategic reallocation of hydrocarbon revenues—through mechanisms similar to Norway's sovereign wealth fund model—could mitigate fiscal risks and support green transitions, providing actionable insights for transforming Algeria's energy landscape.