Are natural resources a blessing or a curse for renewable energy? Uncovering the role of regulatory quality and government effectiveness in mitigating the curse

Abstract

This study examines whether the capacity of the government to formulate and implement sound policies effectively (regulatory quality and government effectiveness) can improve the relationship between natural resource rents and renewable energy consumption. We analyze 96 countries from 2000 to 2020 using a panel threshold regression estimation method and divide these countries into three income groups for heterogeneity analysis. The results show that (i) The correlation between natural resource rents and renewable energy consumption exhibits a non-linear pattern, which shows a "U-shaped." (ii) When regulatory quality and government effectiveness are enhanced, the negative influence of natural resource rents on renewable energy consumption is attenuated or even reversed. This indicates that the formulation and effective implementation of sound policies by the government are conducive to mitigating and even reshaping the curse of natural resources on renewable energy. (iii) Regulatory quality and government effectiveness have the most significant influence in high income countries and the smallest impact in countries with low incomes, while there is some uncertainty about the impact in middle income countries.