Nguyen, Thanh, Morgan, Damian, and Tham, Eric (2026) The Role of Finance and Income in Energy Diversification: A Club Convergence Analysis of Asia-Pacific. Economics of Energy & Environmental Policy, 15 (3). pp. 1-32.

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Abstract

The Asia-Pacific region is the world’s largest energy consumer, yet energy diversification across countries remains significantly uneven despite rising demand and renewable progress. This study examines whether energy diversification is converging in the region and how financial development and economic wealth influence this process. Using data from 40 countries between 1997 and 2021, we found that countries with initially low diversification have improved faster, and regional disparities have narrowed. However, the distribution of diversification levels reveals two distinct peaks, suggesting the presence of convergence clubs. The log-t test confirms this by rejecting full convergence and identifying two clubs: Club 1 (14 countries) with low and slightly declining diversification, and Club 2 (22 countries) with high and increasing diversification. Regional-level regression results show financial development as the strongest driver of energy diversification, followed by per capita income. At the club level, financial development consistently supports diversification, but income has mixed effects negatively associated with diversification in Club 1 and weakly positive in Club 2. These findings underscore the need for club-specific strategies, with policymakers tailoring interventions to their country’s club membership, energy diversification level, and development stage.

Item ID:	94592
Item Type:	Article (Research - C1)
ISSN:	2160-5890
Keywords:	Convergence, Energy diversification, Financial development, Economic wealth, Asia Pacific
Copyright Information:	Copyright © 2026 by the IAEE. All rights reserved.
Date Deposited:	09 Nov 2026 06:43
FoR Codes:	38 ECONOMICS > 3801 Applied economics > 380105 Environment and resource economics @ 70% 38 ECONOMICS > 3801 Applied economics > 380107 Financial economics @ 30%
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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