Examining the Effect of Economic Complexity on Energy Poverty in Developing Countries

Energy poverty is a major obstacle to many countries' social, environmental, and economic development, especially developing ones. Providing universal access to clean energy has garnered global attention, and international organizations have committed to improving access to energy. The existing literature on the drivers of energy poverty does not consider the potential role of economic complexity. This study attempts to fill this gap by analyzing, probably for the first time, the effects of economic complexity on energy poverty in 55 developing countries over the period from 2000 to 2019. To limit potential endogeneity issues, we used the two-stage instrumental variable (IV-2SLS) approach and instrumented a country's economic complexity level in a given year with the average of the economic complexity index of three countries with the most similar specialization patterns with the given country, but that did not share a land or maritime frontier with the given country. The findings of this study, resilient to different specifications, reveal that countries that produce and export a diverse range of sophisticated products, on average, enjoy lower levels of energy poverty. Furthermore, we identify human capital, income, and income inequality to be some transmission pathways via which economic complexity can alleviate energy poverty. As a result, economic strategies aimed at diversifying production capacities and export packages should be one of developing nations' top priority in order to meet SDG 7.