Nguyen, Thanh, and Tham, Eric (2026) Club convergence in energy diversification among low- and lower middle-income countries: The role of domestic credit and income. Green Finance, 8 (3). pp. 501-534.

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Abstract

This study examined the long-run dynamics of energy diversification in 46 low- and lower-middle-income countries, with particular emphasis on the roles of domestic credit and income levels. Applying the Phillips–Sul convergence framework to energy concentration as an inverse measure of diversification, we found no evidence of full-sample convergence despite overall diversification gains and reduced cross-country dispersion. Instead, countries form three distinct convergence clubs, differentiated by their initial energy diversification levels and subsequent trajectories. Economies with more diversified starting points continue to broaden their energy mix, while those with highly concentrated systems exhibit slower and more limited diversification. Further regression analysis showed that higher levels of domestic credit are consistently associated with greater energy diversification. The relationship between income and diversification is nonlinear: diversification initially increases with gross domestic product (GDP) per capita but declines beyond an estimated turning point of approximately PPP03, with most observations lying below this threshold. Importantly, interaction results reveal that the diversification effect of domestic credit is income-dependent, with credit expansion exerting a stronger impact at lower income levels. Overall, the findings suggest that effective energy diversification requires a staged and context-sensitive approach, in which financial policies evolve alongside income levels and existing energy structures. Aligning financial conditions with realistic energy transition pathways is likely to be central to achieving sustained diversification outcomes in developing economies.

Item ID:	94590
Item Type:	Article (Research - C1)
ISSN:	2643-1092
Copyright Information:	© 2026 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0).
Date Deposited:	09 Nov 2026 07:06
FoR Codes:	38 ECONOMICS > 3801 Applied economics > 380107 Financial economics @ 40% 38 ECONOMICS > 3801 Applied economics > 380105 Environment and resource economics @ 60%
SEO Codes:	17 ENERGY > 1703 Energy storage, distribution and supply > 170305 Energy systems and analysis @ 50% 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150203 Economic growth @ 30% 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150209 Savings and investments @ 20%
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