Does Income Inequality Play a Role in Renewable Energy Consumption? A Dynamic Panel Evidence of Developing Countries

Reducing income inequality and promoting renewable energy use are two significant challenges faced by developing economies. The primary purpose of this study is to empirically analyse the interlinkages between income inequality and renewable energy for selected developing countries from 1993 to 2020. The study performed multiple panel unit root tests followed by a cointegration test for any cointegrating relationship among the variables. The panel autoregressive distributive lag model (ARDL) was used to obtain long-run and short-run estimates. The Dumitrescu & Hurlin panel causality test was applied to identify the direction of causality. Results reveal that higher income inequality significantly reduces renewable energy consumption. The bi-directional causal relationship between all income inequality indices and renewable energy consumption reaffirmed their mutual dependence. The study used four major income inequality indices, namely, the Gini Index, Atkinson Index, Palma Ratio, and Theil Index, to test the empirical model, which, to the best of the author’s knowledge, is the first of its kind for developing countries. The findings advocate for policies resulting in a fairer income distribution and securing a greener and more sustainable future for these economies.