Regional aspects of financial development and renewable energy: A cross-sectional study in 214 countries

Renewable energy is one of the most promising technologies for developing sustainable energy systems. This paper presents empirical evidence on the finance-green energy nexus. We use an extensive database on financial development (depth, access, efficiency, stability) from 1960 to 2017 for 214 countries, providing the first, to our knowledge, comprehensive empirical investigation on all four dimensions. We show macroeconomic and energy development conditions (public/social awareness and willingness, policy and legal framework, fossil fuels orientation, energy sector competition) are crucial to lever-age financing and improve financing conditions for renewable energy entrepreneurs. Our empirical findings show that the financial system in East Asia and the Pacific is a significant constraint for investments in sustainable technologies. The cost of capital and debt, as well as the cost of equity and assets, for green investors, is commonly 30% higher than for non-green investors. Our findings support the crowding-in effect for South Asia. Here we supply empirical knowledge on the policymakers' and investors (governments, institutions, markets) goals, policies, and instruments targeting green financing and sustainable development.(c) 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.

Automated summary

This paper presents empirical evidence on the finance-green energy nexus and highlights the importance of macroeconomic and energy development conditions for leveraging financing and improving financing conditions for renewable energy entrepreneurs. The study finds that the financial system in East Asia and the Pacific significantly constrains investments in sustainable technologies.