Green Energy Is Not a Shortcut to Economic Convergence in Eastern Europe

Central and Eastern Europe has spent the past two decades pursuing two transformations at once: catching up economically with wealthier European economies and shifting toward cleaner energy. The assumption that these goals naturally reinforce each other is politically attractive, but new research suggests the relationship is far less automatic.

The study, "Renewable Energy Adoption and Conditional Income Convergence: Evidence from Central and Eastern Europe," by Zhimo Zou, Hengyi Zhou and Kaidi Yu, published in the journal Economies, examines whether renewable-energy adoption has actually accelerated income catch-up across 11 Central and Eastern European countries. Using annual data from 2000 to 2024, the researchers find evidence that poorer economies have tended to grow faster after structural differences are considered, but little robust evidence that renewable energy itself has independently accelerated that convergence.

Renewable energy may still bring benefits through energy security, investment, technological upgrading and decarbonisation, but the findings caution against treating green investment as an automatic mechanism for narrowing regional income gaps. The transition appears to be moving alongside convergence rather than clearly driving it.

Poorer Economies Have Caught Up, but the Process Has Been Uneven

The researchers analyse Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia, producing a balanced dataset of 275 country-year observations. The period captures EU enlargement, the global financial crisis, the European debt crisis, COVID-19 and the more recent acceleration of renewable-energy deployment.

The study tests "conditional convergence": the idea that poorer countries can grow faster than richer ones once differences in investment, population growth, openness, education, inflation and institutional quality are taken into account. This is a more realistic test than assuming all economies should eventually reach exactly the same income level regardless of their structural characteristics.

Under the preferred fixed-effects models, initial income generally carries a negative coefficient. In practical terms, countries starting from lower levels of income tended to grow faster once national structural differences were controlled for. That provides qualified support for the idea that Central and Eastern Europe experienced a catch-up process over much of the study period.

However, the convergence story changes dramatically over time. The strongest catch-up was associated with the EU-accession period, while the process weakened during successive crises and later gave way to short-term divergence. The research estimates annual convergence speeds of roughly 11% to 16% during the 2000–2008 catch-up phase, followed by stagnation during the crisis years and divergence from 2016 onward.

This temporal pattern may be one of the study's most important insights. Economic convergence is not a smooth, permanent process; it can be interrupted by financial shocks, energy crises and uneven recovery. For policymakers, maintaining convergence may therefore require resilience to shocks as much as long-run investment.

Renewable Energy Is Spreading, but That Does Not Mean It Is Driving Income Convergence

The study separates renewable electricity production from renewable energy consumption because the two capture different aspects of the transition. Renewable electricity is closely linked to grids, utilities and power-sector regulation, while renewable consumption reflects a wider transformation across the overall energy system.

Renewable adoption itself shows evidence of catch-up. Countries beginning with lower renewable shares often expanded faster later, particularly in renewable electricity generation. Yet the researchers stress that convergence in renewable adoption should not be confused with renewable energy causing convergence in incomes.

Neither renewable electricity nor renewable energy consumption emerges as a robust independent accelerator of income catch-up, and the interaction between renewable adoption and starting income remains statistically insignificant in the preferred specifications.

A two-year-lag test designed to strengthen the timing of the relationship produces the same broad conclusion. Lower initial income continues to predict faster subsequent growth, but lagged renewable-energy variables and their interaction with income remain insignificant. The authors therefore describe their results as conditional associations rather than definitive causal effects.

For policymakers, this is a useful warning against confusing simultaneous trends. Two things can happen together, more renewable energy and greater economic convergence, without one necessarily being the primary cause of the other.

Green Investment Needs Strong Institutions and Productive Capacity to Deliver Catch-Up

The absence of a clear independent convergence effect does not imply that renewable energy has no economic value. The study itself outlines several possible benefits, including reduced dependence on imported energy, greater energy security, new investment and technological upgrading. The difficulty is that countries differ in their ability to turn these advantages into productivity and income gains.

Renewable infrastructure does not operate in isolation. Grid modernisation, financing conditions, regulatory coordination, human capital and institutional quality determine whether investment produces wider economic spillovers. Economies with stronger institutions and greater absorptive capacity may be better positioned to capture the gains from the transition.

This has particular significance for EU cohesion policy. If wealthier or institutionally stronger economies convert green investment into productivity gains more effectively, a common decarbonisation strategy could unintentionally reproduce existing disparities even while achieving environmental objectives. Climate policy and convergence policy thus cannot simply be assumed to reinforce each other.

The investment implications are equally important. Capital directed toward wind, solar, storage and grid infrastructure may have stronger developmental effects when paired with industrial policy, workforce development, local supply-chain capacity and institutional reform. The policy objective should not merely be to increase the share of renewables, but to strengthen the economic ecosystem capable of turning those assets into lasting productivity gains.

The Real Lesson Is That Decarbonisation and Development Need to Be Designed Together

The study's methodological caution strengthens rather than weakens its policy relevance. It uses multiple panel estimators, country fixed effects and several robustness corrections because the countries are exposed to common shocks and display substantial structural differences. More demanding statistical corrections weaken some of the apparent evidence for income convergence, reinforcing the need for caution in causal interpretation.

There are also important limitations. The sample covers only 11 countries, several institutional and human-capital concepts are represented by proxy variables, and renewable-energy statistics may contain differences in national reporting or classification. The researchers also do not use external instrumental variables or dynamic-panel methods, meaning the analysis cannot fully establish causation.

Future research should therefore examine the mechanisms through which green investment may affect convergence rather than simply asking whether renewable shares correlate with growth. Employment creation, industrial upgrading, electricity prices, energy-import dependence, grid investment and regional supply chains could all determine whether the transition produces wider developmental dividends.

The broader implication extends beyond Central and Eastern Europe. For developing countries and other regions pursuing decarbonisation alongside economic catch-up, renewable energy should not be treated as a substitute for the structural foundations of growth. Clean energy can support development, but its impact depends on institutions, investment quality, productive capacity and the ability to absorb new technologies.