The Threshold Effects of Energy Subsidies on the Relationship between Government Policies in the Energy Sector and Economic Complexity Emphasizing the uncertainty of economic policy

RajiAsadabadi, Mohsen; Khodaparast Shirazi, Jalil; Zare, Hashem; Ebrahimi, Mehrzad

doi:10.22034/pbr.2026.556559.1594

The Threshold Effects of Energy Subsidies on the Relationship between Government Policies in the Energy Sector and Economic Complexity Emphasizing the uncertainty of economic policy

Document Type : Original Article

Authors

mohsen RajiAsadabadi ¹

Jalil Khodaparast Shirazi ²

Hashem Zare ³

Mehrzad Ebrahimi ¹

¹ Department of Economics, SHI.C., Islamic Azad University, Shiraz, Iran

² Islamic Azad University of Shiraz, Faculty of Economics and Management, Department of Economics

³ Associate Professor, Department of Economics, SHI.C., Islamic Azad University, Shiraz, Iran

10.22034/pbr.2026.556559.1594

Abstract

Energy policies, particularly subsidies on energy carriers, are often employed as costly instruments for economic and social support in oil-export-dependent economies. This study investigates the nonlinear and threshold effects of energy subsidies on economic complexity in eight OPEC member countries from 2000 to 2023, emphasizing the moderating role of Economic Policy Uncertainty (EPU). Utilizing a Panel Smooth Transition Regression (PSTR) model, which captures smooth transitions between different regimes, we identify an optimal subsidy threshold of approximately 0.96 units, confirming an inverted U-shaped relationship. The estimated coefficients reveal a dual policy pattern: on one hand, energy subsidies (beyond the threshold) and EPU exert significant negative effects on economic complexity. On the other hand, energy sector productivity (coefficient:0.036), financial development (coefficient:0.394), and information and communication technolog (coefficient: 0.140) in the baseline regime show significant positive coefficients, acting as enhancers of economic complexity.These findings underscore the necessity of a policy shift from untargeted energy subsidies toward stabilizing the macroeconomic environment, improving energy efficiency, and strengthening financial and digital institutions to foster a more complex and diversified economic structure in OPEC countries.

Keywords

Energy Subsidy

Economic Complexity

Economic Policy Uncertainty (EPU)

PSTR Model

OPEC

Subjects