Decoding the Paradoxical Drivers of Renewable Energy Transition in Arab Countries

This study explores the reasons why, despite ambitious national strategies, the deployment of renewable energy in Arab countries has persistently lagged behind global trends. It investigates the drivers of this disparity by analyzing the impact of fiscal capacity, energy market size, and energy dependence on renewable energy development. To control for country heterogeneity, this paper divides Arab countries into three groups based on their degree of energy dependence: energy-importing countries, energy-exporting countries, and energy trade reversal countries. Using a panel dataset of 17 Arab countries from 1990 to 2022, this study employs a dynamic common correlated effects (DCCE) estimator, which uniquely accounts for cross-sectional dependence and distinguishes between short-run dynamics and long-run equilibrium. The results reveal three key findings. First, in energy-importing and energy trade reversal countries, improvements in government fiscal balance significantly promote renewable energy development. Second, higher energy consumption exerts a persistent negative effect on renewable energy development, suggesting that demand expansion reinforces carbon lock-in rather than facilitating transition. Third, energy dependence exhibits a temporal asymmetry: it hinders renewable deployment in the short run, but becomes a strong positive driver in the long run, reflecting a shift from immediate supply security to strategic energy security. However, for energy-exporting countries, those drivers are statistically insignificant, highlighting strong path dependence. These findings partly validate the “developmental state”, “carbon lock-in”, and “energy security” theories within the Arab context. The study concludes that fiscal buffers and the pursuit of energy security facilitate the deployment of renewable energy in specific country contexts, while growth in energy consumption reinforces carbon lock-in. These findings contribute to SDG 7 and SDG 13, with particular relevance to Arab countries grappling with the dual challenges of economic diversification and the climate commitments outlined in the Paris Agreement.