Energy independence and economic resilience

This paper systematically examines the relationship between energy independence and economic resilience across 68 economies from 2002 to 2023. Using a factor-augmented vector autoregression model with sign restrictions, we report three main findings. First, energy independence plays a crucial role in enhancing economic resilience by reducing the relative impacts of global supply and demand shocks. Second, subsample analysis reveals cross-country heterogeneity. The mitigating effect of energy independence is more pronounced for energy importers, while energy exporters are more directly affected by energy price fluctuations and thus exhibit more procyclical responses. Third, mechanism analysis highlights the key roles of energy diversity, green transition, and energy efficiency, but their effectiveness varies across countries. For energy exporters, advancing green transition and energy efficiency is critical for strengthening resilience. For energy importers, these mechanisms dampen fluctuations driven by global shocks but raise other risks of energy insecurity. These findings offer new insights into cross-country differences in economic resilience and highlight the practical importance of incorporating energy independence into policy objectives. • Energy independence mitigates the impacts of global shocks on economic fluctuations. • Heterogeneous mitigating effects across economies, stronger for energy importers. • Energy diversity, green transition and energy efficiency act as mechanisms. • Critical to incorporate energy independence into macro-stabilization frameworks. • Energy importers and exporters face different trade-offs in energy policy.