Renewable Energy Adoption and Conditional Income Convergence: Evidence from Central and Eastern Europe

This paper explores whether the adoption of renewable energy has accelerated income catch-up in Central and Eastern Europe. The analysis is based on the conditional beta convergence theory, which posits that, after controlling for steady-state differences among countries, economies with lower initial incomes are expected to grow faster. This study uses balanced annual panel data from 11 Central and Eastern European countries between 2000 and 2024. The study distinguishes between two measures of renewable energy transition: renewable electricity production (REL) and renewable energy consumption (REN). The empirical study is conducted in three phases. First, descriptive statistics and convergence indicators are used to document the adoption of renewable energy. Second, income growth equations are estimated using pooled OLS models, fixed-effects models, and random-effects models. Finally, model selection and residual diagnostic tests are applied, including the F-test between pooled OLS and fixed-effects models, the Breusch–Pagan LM test, the Hausman test, and robustness tests based on cluster standard error and Driscoll–Kraay standard error. Other tests include panel unit root tests, substitution lag structure tests, outlier diagnostics, and a pre-specified two-year lag model. The results provide qualified support for conditional income convergence. In fixed-effects models, the coefficient for initial income is typically negative, indicating that lower-income countries tend to grow faster after accounting for structural differences. However, this finding weakens under the more demanding Driscoll–Kraay inferences, particularly in the REN model. In contrast, neither the renewable energy variables nor their interaction with initial income provide strong evidence that they have an independent impact on faster income catch-up. Overall, the renewable energy transition appears to be an accompanying rather than independent driver of income convergence.