The dynamic relationship between green innovation, human capital and energy efficiency in E7 countries: based on the PVAR approach

Purpose Energy efficiency is a cornerstone of green growth in emerging economies. This study aims to explore how green innovation, human capital, financial development and institutional quality shape energy efficiency in the emerging Seven (E7) countries between 1995 and 2019. Design/methodology/approach Using a panel vector autoregression (PVAR) framework, the empirical analysis investigates direct and dynamic linkages. Granger causality tests, variance decomposition and impulse–response functions are used to capture causal directions and the relative importance of the determinants. Findings The results highlight that green innovation and human capital significantly enhance energy efficiency. In contrast, financial development exerts a negative influence, reflecting inefficiencies in channelling of financial resources towards sustainable outcomes. Institutional quality shows only marginal effects, indicating that governance frameworks in E7 economies remain inadequate for supporting deep energy transitions. Causality tests reveal bi-directional links between energy efficiency, human capital and financial development, while the influence of green innovation on efficiency is unidirectional. Practical implications Policies should prioritise strengthening green innovation ecosystems, reorienting financial flows towards clean energy technologies and enhancing institutional frameworks that underpin sustainable energy transitions. Originality/value This study provides novel empirical insights by applying a dynamic systems approach to disentangle the role of green innovation and human capital in improving energy efficiency across emerging economies, thereby offering actionable guidance for policymakers seeking to balance growth with sustainability.