The Role of Renewable Energy Adoption in Driving Structural Change and Economic Development in Developing Economies: An Analysis with GMM and Quantile Regression

Renewable energy adoption plays a crucial role in driving the structural change and economic development of developing economies. This research study explicitly examines the role of renewable energy adoption in the labour transition process during structural transformation in developing economies as economic activity shifts from the traditional rural sector to the modern industrial sector. The study aims to validate the Arthur Lewis Dual-Sector Model using data from 27 developing economies, spanning 16 annual observations and covering the period from 2006 to 2022. The chosen period highlighted key events in the structural transformation of these countries. The study entailed the construction of a labour transition index for the countries in observance of the transition of labour from the rural agrarian sector to the urban mechanized industry. The analytical framework used in the study combines the Panel Generalised Method of Moments (GMM) and the Quantile Regression approaches. First, renewable energy has a negative and significant effect on the labour transition index. The adverse impact is reasonable as the overall labour transition index contains more industrial sector employment that will resist the change from the orthodox fossil fuel energy option. Another finding shows that access to clean fuel energy in rural areas has a positive and significant effect on the labour transition index, supporting the application of the Arthur Lewis model of rural-urban transition in the unlimited labour supply thesis. While recommending an increase in the adoption of renewable energy sources in developing countries, the study also suggests improving the capacity building of human resources to handle the technology associated with renewable energy implementation.