The Role of Energy Investment in Promoting Economic Sustainability in Developing Countries: A CS-ARDL Analysis

Abstract

Energy investment plays a pivotal role in promoting economic sustainability through a reliable energy supply to support industrial production and innovation. The current work investigates the difference in energy investment and economic sustainability between 1990 and 2022 for the 88 developing countries with an income classification. Using the Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) methodology, the research simultaneously tests the short and long run dynamics, while explicitly modeling cross section dependency. The results suggest that although labor force participation, capital formation, human capital, and foreign direct investment have positive impacts on economic sustainability across income levels, energy investment, especially when used for creating public-private partnerships, fosters economic growth in middle-income economies but has a negative correlation with low-income economies. Policy implications drawn from the findings induce that boosting investment in the energy sector, with special focus on the use of renewable technologies in low- income countries, would be an effective strategy for promoting sustainable development.