Institutional quality, technology readiness and energy sustainability: evidence from developing and developed countries

Amid growing pressure to accelerate sustainable energy transitions, an important economic question is whether stronger institutions and greater technological capability reinforce one another, or whether their marginal contributions change as economies become more advanced institutionally and technologically. This study examines how institutional quality influences energy sustainability and whether technology readiness conditions this relationship across 164 countries from 2010 to 2023. Building on New Institutional Economics and Ecological Modernisation Theory, the analysis argues that institutions support sustainable energy by improving regulatory credibility and implementation capacity, while technology readiness provides the capabilities required to deploy and adapt advanced energy solutions. A fixed-effects panel error-correction model distinguishes equilibrium relationships from short-run adjustments, complemented by Driscoll–Kraay estimates and System GMM robustness tests. Institutional quality is positively and significantly associated with energy sustainability in the equilibrium relationship, whereas the independent effect of technology readiness is less robust after country and year heterogeneity are controlled for. Most importantly, the institutional quality–technology readiness interaction is negative and significant in both equilibrium and short-run specifications. Marginal-effects analysis shows that the positive contribution of institutional quality declines as technology readiness increases, supporting a conditional attenuation rather than a universal substitution interpretation. The relationship is more pronounced in developing economies, where regulatory quality, government effectiveness and rule of law emerge as particularly relevant institutional dimensions. The findings show that sustainable energy transitions depend on the alignment and sequencing of institutional and technological capabilities rather than their independent accumulation.