Does Energy Security Affect Institutional Quality? Empirical Evidence from Emerging Economies

In light of an increasingly complex and uncertain environment, energy security and institutional quality are recognized as important factors that influence sustainable development. Emerging economies that seek to address the problems of high energy need/consumption for development and with relatively poor institutional quality have become a topic of interest in current research. This chapter is the first work to contribute to institutional quality literature by examining the impact of energy security, measured along eight different dimensions, on institutional quality in 43 emerging economies for the period 2002–2017. We conducted panel data analysis using the panel corrected standard error (PCSE) and feasible generalized least square (FGLS) techniques to deal with autocorrelation and heteroscedasticity, and to check for robustness. The autoregressive distributed lag (ARDL) model and pooled mean group estimator were also employed to check the long-run effects. The results show that (i) six of the eight energy security indicators (i.e., energy gap, energy supply capability, energy structure, energy inefficiency, and energy developability in terms of consumption and CO2 emissions) negatively affect institutional quality, whereas energy developability in terms of the CO2 emissions per unit of energy consumption and energy acceptability (renewable energy consumption) has significant positive impacts; (ii) most of these energy security indicators have insignificantly positive effects on institutional quality in the short run, while seven of the eight energy security indicators have significantly negative effects on institutional quality in the long run. The effects of the energy security indicators on institutional quality were found to be consistent with the six institutional dimensions. Interestingly, these findings imply that emerging countries should increasingly use renewable energy to enhance institutional quality for long-run benefits.