Impacts of Epidemics on Energy Security: An Empirical Analysis

I. Introduction

Energy is a crucial foundation for economic growth, national security, and sustainable development, making it a top priority in the 21st century (Bielecki, 2002). Since the outbreak of the two oil crises in the 1970s, the core of the energy issue has been energy security, which has become the focus of attention of all countries (Iyke et al., 2021). In other words, energy security is not only an economic issue, but also a political, military, and strategic issue (Le & Nguyen, 2019). More and more studies are focusing on the significant variation in energy security across countries and the determinants of energy security, with some of the determinants found being economic sanctions, extreme events, and economic development (Chen et al., 2019; Wen et al., 2021). However, few, if any, empirical studies explore the impact of epidemics on energy security. We look to fill this research gap in the literature through our investigation.

Improving public health is a fundamental social and economic objective. Particular attention should be paid to the impact of epidemics, because they can lead to a cascading failure or chain reaction in interconnected social networks (Bell & Gersbach, 2013; Namatame & Komatsu, 2011). If epidemics are not controlled, they spread quickly through populations, with enormous negative economic consequences. The COVID-19 epidemic has destroyed the health of many and has had major impacts on the social economy at every level (Kathiresan et al., 2020). Given this context, we argue that epidemics can reduce energy security. A possible channel through which epidemics can affect energy security is as follows. First, the occurrence of epidemics reduces economic growth levels and leads to a reduction in countries’ trade openness (Cuesta, 2010), which has a further negative effect on energy security. Second, infectious diseases will undermine a country’s financial stability (Salisu & Obiora, 2021). Stock market reactions will further increase energy price risk and adversely affect energy security. Third, the spread of an epidemic between countries hinders their energy security through geopolitical factors (Liu et al., 2019).

In this study, we empirically examine whether epidemics have a significant impact on energy security and how such an impact varies depending on the country’s economic situation, which is this paper’s main contribution. Using panel data covering 136 countries from 1989 to 2019, we demonstrate that epidemics negatively and significantly impact energy security, not only in the current year but also in the next five years. Moreover, the adverse impact can be weakened in high-income countries.

The remainder of this paper is organized as follows. Section II explains the methodology and data. Section III illustrates the empirical results. Section IV provides a conclusion and policy implications.

II. Methodology and Data

A. Methodology

The aim of our study is to investigate the relation between epidemics and energy security using panel data covering the period from 1989 to 2019. Accordingly, we use the following panel data model:

$$\begin{align} {Energy}_{i,t} = &{\propto}_{0} + \propto_{1}{Epidemic}_{i,t} + \gamma Z_{i,t} \\ &+ \mu_{i} + v_{t} + \varepsilon_{i,t} \end{align} \tag{1}$$
where ${Energy}$ represents energy security, which is measured by net energy imports divided by energy use and where the larger the value, the lower the energy security of the country or region; ${Epidemic}$ is the main independent variable, measured by the number of persons affected by the epidemic; $Z$ is a vector of control variables that could affect energy security, including the level of economic growth (GDP), trade openness (Openness), industrial structure (Industry), the occurrence of earthquakes (Earthquake), and income inequality (GINI); $\mu_{i}$ and $v_{i}$ are time and country fixed effects, respectively; and $\varepsilon_{i,t}$ is the error term.

B. Data

Compared to traditional cross-sectional or time-series data, panel data increase the number of degrees of freedom of the data and reduce the collinearity between the explanatory variables, thus improving the validity of the empirical estimation. Most of the data are obtained from the Emergency Events Database and the World Development Indicators database.

III. Empirical Results

A. Basic Results

First, we present the empirical results for the relation between epidemics and energy security by using the panel fixed effects model in column (1) of Table 1. Column (1) shows that the coefficient of the variable Epidemic is 0.0109 and significant at the 5% level, which indicates a significantly negative impact of epidemics on energy security.

B. Robustness Tests

We conclude from the basic results that epidemics have a significant inhibiting effect on energy security when other relevant variables are controlled for. To verify this result, we perform a series of robustness tests, including testing for long-run effects and heterogeneity concerns.

B1. Long-Run Effects

The impact of epidemics on energy security could have a lagging effect. More specifically, from the occurrence of an epidemic to its impact on the economy, trade, and financial markets and then to energy security, it takes time for each link to play its role. Therefore, this paper further examines the impact of epidemics on energy security on the one- to five-year lag of energy security, with the results listed in in Table 1, columns (1) to (6), respectively. The regression results of the lag effect test show that epidemics can have an adverse effect on energy security that not only is effective the current year, but also continues in the next five years. The basic regression results in this paper are therefore stable.

B2. Heterogeneity Concerns

We suspect the impacts of epidemics on the energy security of countries with different levels of economic development can differ. Hence, to study how income levels influence the effect of epidemics on energy security, we first add a dummy variable, High, which equals one for countries with a high income level, according to the standards of the World Bank, and zero otherwise. We then generate the interaction term between Epidemic and High, with the results listed in column (7) in Table 1. These results for Epidemic*High show that high income levels can weaken the negative effect of epidemics on energy security.

IV. Conclusion and Policy Implications

This study investigates the effects of epidemics on energy security by using panel data from 1989 to 2019. We demonstrate that epidemics have an adverse impact on energy security, not only in the current year but also in the next five years. Moreover, the adverse impact can be weakened in high-income countries.

Accordingly, we confirm that this research can remind policymakers and scholars who care about the field of energy security to not ignore the impact of epidemics such as COVID-19 on a country’s energy security. In addition, the government should take measures to increase income levels to cope with the negative impacts of epidemics on energy security.