Education puzzle, financial inclusion, and energy substitution: Growth Scales

Human capital is at the heart of new theories of growth through the intrinsic role of education. Economic growth, also called income effect or scale effect, is a crucial mechanism for education’s influence on energy. In line with Romer, maintaining increasing returns to scale is the result of a dynamic of growth on energy. Thus, in view of the urgency of the transition to renewable energies in Sub-Saharan Africa, this study examines the place of income in energy substitution. Controlling the dynamic nature of renewable energy, and the endogeneity both between the regressors and the threshold variable, the new generation of Seo and Shin's dynamic panel threshold model (DPTM) is performed. Including the quality of institutions, financial inclusion and industrialisation, the first-difference GMM approach is applied on a sample of 33 countries over 2005-2022. The findings show that the initial level of renewables affects the subsequent level of renewables consumption. Moreover, the transition from non-renewables to renewables is efficient when income stabilizes at a rate of 6.87%, human capital being involved in the process. It emerges that the contribution of growth to renewables follows the law of diminishing marginal returns with a stronger effect in Low-income than Middle-income countries.