Does information substitute or complement energy? - A mediation analysis of their relationship in European economies

Philipp Theile, Markos Farag and Thomas Kopp

VfS Annual Conference 2022 (Basel): Big Data in Economics from Verein für Socialpolitik / German Economic Association

Abstract: In its decarbonization efforts, the European Union aims to decrease energy consumption through technological advances. One of the most prominent advances is the increased extension and utilization of digital information and communication technologies. However, there is little understanding of how precisely digitalization and energy consumption are related. This study aims to empirically analyze the impact and transmission channels of digitalization on energy consumption in the European Union. We build our empirical analysis in two steps. First, we employ the two-step sys-GMM estimator to examine the direct impact of digitalization on energy consumption, controlling for the effects of the mediation variables. Second, we use the causal mediation approach to estimate the relative importance of each mediation variable through which digitalization affects energy consumption. We rely on a sample of 28 European countries from 2007 to 2019. The empirical results suggest that digitalization significantly reduces energy consumption. We find that a 10% increase in digitalization reduces energy consumption by 0.4%, on average. The causal mediation analysis reveals that digitalization has an indirect positive effect on energy consumption through GDP per capita and industrial structure and an indirect negative impact through financial development and human capital.

Keywords: Digitalization; Mediation Analysis; Energy Consumption; Digitalization indices; Embodied Energy; Panel data; Two-step sys-GMM (search for similar items in EconPapers)
JEL-codes: C33 C50 Q41 Q43 Q55 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-eec, nep-ene and nep-ict
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc22:264123

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