Energy Dependence, Energy Import Diversification, and Institutional Quality: Heterogeneous Impacts on Sustainable Economic Development in the European Union

ABSTRACT Energy dependence poses significant risks for economic development, particularly in regions that rely heavily on imported fossil fuels. This paper examines how energy dependence and energy import diversification influence economic development across 27 European Union countries between 2000 and 2022. Using IV‐GMM and panel quantile regressions, and incorporating institutional quality as a moderating factor, we show that higher energy dependence reduces economic performance, while greater diversification of energy imports contributes to more resilient and sustainable growth outcomes. These effects vary across the income distribution and across levels of institutional quality, with relatively wealthier countries experiencing stronger negative impacts from dependence, while institutional strength mitigates adverse effects, particularly in low and middle‐income economies. Our findings highlight the importance of energy security, diversification, and renewable energy adoption as strategic components of economic development pathways. The results provide policy‐relevant evidence supporting the EU's long‐term transition toward a resilient, low‐carbon, and energy‐secure economy.