Determinants of the Energy Transition in Latin America

Abstract

cThis study investigated the energy transition in 17 Latin American countries during the period 2000–2021, addressing its theoretical foundations, the evolution of its determining variables, and the factors that drive or hinder it. The descriptive analysis reveals a deeply heterogeneous region. The evolution of key economic indicators, such as GDP per capita, investment, and natural resource rents, shows strong procyclicality and vulnerability to global cycles, affecting the capacity for sustainable investment. To identify the determinants, a panel data model was implemented, whose final specification was a random-effects model after passing the Hausman test. The results of the econometric analysis identify economic growth (GDP per capita) and Foreign Direct Investment (FDI) as the main catalysts of the transition, showing a positive and significant relationship with renewable energy consumption. However, the model also reveals significant structural barriers: high CO₂ emissions, greater domestic credit to banks (CIB), and, crucially, Gross Fixed Capital Formation (GFCF) have a negative impact. This suggests that investment in the region is still predominantly directed toward non-sustainable sectors. Variables such as urbanization or natural resource rents were not found to be significant, reinforcing the conclusion that the transition depends more on structural economic factors and the direction of investment than on demographic trends or resource endowments.