Do Structural Transformation and Energy Transition Cause Growth?

Olatunji A. Shobande, Lawrence Ogbeifun and Aviral Kumar Tiwari

Review of Development Economics, 2025, vol. 29, issue 4, 2710-2735

Abstract: Structural transformation is widely recognised as a fundamental driver of sustained economic growth. However, the existing literature on this process remains fragmented and inconclusive, preventing a clear understanding of its underlying dynamics. This knowledge gap is further compounded by the urgent need to address the climate crisis while managing the transition to a net‐zero energy future. The stakes have never been higher: without a clear understanding of how structural transformation interacts with broader economic and environmental shifts, policymakers risk pursuing strategies that fail to address the interconnected challenges of economic development and sustainability. This paper makes three key contributions. First, it examines the role of structural transformation and the energy transition in driving economic growth within the OECD from 2000 to 2022. Second, it proposes strategies for harnessing high‐performing sectors to promote growth without compromising sustainability. Third, it highlights the critical importance of addressing endogeneity to improve growth predictability and policy formulation. The empirical strategy employs second‐generation time‐series methods in combination with dynamic econometric analysis. At the aggregate level, the findings show that both the industrial and service sectors make positive, statistically significant contributions to economic growth, while the agricultural sector has a negative impact. Furthermore, the analysis emphasizes the vital role of renewable energy in driving economic growth during the energy transition. However, when examining sector‐specific data, the results are more mixed. This highlights the urgent need for policies that effectively integrate the energy transition with economic development, ensuring that growth in key sectors is not only sustainable but also aligned with environmental goals.

Date: 2025
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