Economic Complexity and Fossil Energy Consumption: An Empirical Analysis for Iranian Provinces

Abstract

Economic complexity refers to the accumulation of productive capabilities in an economy. Accelerating the accumulation of these capabilities increases the capacity to invent and absorb new technologies. Over the initial stages of economic development, most countries absorb energy-intensive technologies, which will lead to an increase in fossil energy consumption. By increasing the economic complexity of a country and the accumulation of complex capabilities, it becomes possible to absorb and invent new energy-efficient and clean technologies, which will be a factor in reducing the intensity of fossil energy consumption. In this paper, we investigate the effect of the economic complexity of Iran's provinces on the consumption of fossil energy over the period 2005-2018. For this purpose, the system GMM estimator in dynamic panel data has been applied. The results of the paper indicate that the increase in the economic complexity of the provinces is the driver of fossil energy consumption, so that the hypothesis of the "Energy-Environmental Kuznets Curve" across the provinces of the country is rejected. Accordingly, making the current production structure more complex in Iran's economy will not help to reduce fossil energy consumption. Other results show that (a) the per capita consumption of fossil energy is inelastic with respect to the relative price of fuel, and (b) the rate of urbanization is the driver of energy consumption. According to the findings of the research, it is recommended that instead of implementing pricing policies to reduce energy consumption, the government should emphasize changing the production structure by using clean technologies.

Keywords

• energy consumption, economic complexity, hypothesis of "energy-environmental kuznets curve"
• panel data, system gmm estimator, province