Government Effectiveness, Renewable Energy and Economic Complexity: Evidence from Morocco and Emerging Economies

Abstract

Does the energy transition foster productive sophistication, or does it merely replace fossil fuels within an unchanged industrial structure? This study examines the relationship between renewable electricity and economic complexity in Morocco and 29 emerging and frontier economies. It combines an autoregressive distributed lag (ARDL) model for Morocco (1996–2021), using bootstrap critical values, with a panel Pooled Mean Group (PMG) estimator for 29 economies (2011–2023). Robustness checks address common shocks, parameter heterogeneity, and country sensitivity. For Morocco, the results suggest a fast-adjusting long-run relationship, although sensitivity to lag selection and individual years, together with residual autocorrelation, limits the evidence. At the panel level, renewable electricity shows no statistically significant common long-run association with economic complexity. Government effectiveness is positively associated with complexity in the PMG estimates, but its magnitude declines after controlling for common year effects, and its significance weakens under alternative estimators. An interaction specification suggests that renewable electricity is more strongly associated with complexity where government effectiveness is higher. These conditional associations do not establish causality but challenge the assumption that renewable capacity automatically drives industrial upgrading. The findings identify institutional capacity as a potential enabling condition and motivate three policy hypotheses for future testing.