Citation

Gyamfi, Bright Akwasi and Yadav, Ashutosh and Agozie, Divine Q. and Kumar, Nitish and Asongu, Simplice A. (2026) Financial development, infrastructure investment, and energy transition in developing economies. Energy, 362. p. 142050. ISSN 03605442

Text Financial development, infrastructure investment, and energy transition in developing economies - ScienceDirect.pdf - Published Version Restricted to Repository staff only Download (251kB)

Abstract

This study examines how financialization shapes energy transition in developing economies by modelling financial development, foreign direct investment and environmental taxation as capital-allocation and fiscal-policy channels that interact with infrastructure capacity. Using a balanced panel of 39 developing economies from 2000 to 2021, the study estimates a dynamic energy-transition model in which renewable energy consumption is explained by the IMF Financial Development Index, FDI inflows, environmental tax revenue, service-sector value added, gross capital formation and infrastructure development. The empirical strategy combines two-step difference GMM to address endogeneity and dynamic persistence, panel quantile regression to capture distributional heterogeneity, and additional sensitivity tests using Private Participation in Infrastructure investment commitments as an alternative infrastructure-investment proxy. The results show that environmental taxation consistently accelerates energy transition, while financial development is negatively associated with renewable energy consumption, suggesting that current financial deepening in many developing economies remains structurally tied to carbon-intensive energy systems. FDI produces mixed effects, indicating that foreign capital supports transition only when it is sectorally aligned with renewable-energy deployment. The sensitivity evidence confirms that the core findings are not driven by the baseline infrastructure measure: total PPI investment has a positive but modest effect, and transport infrastructure investment emerges as a significant enabling channel. Policy recommendations therefore emphasise mandatory green-finance allocation targets, ring-fenced recycling of environmental tax revenues into grid modernisation and decentralised renewables, stronger screening of FDI by energy-sector destination, and infrastructure-investment planning that closes transition bottlenecks rather than expanding fossil-fuel lock-in.

Item Type:	Article
Uncontrolled Keywords:	Economics, Energy economics
Subjects:	H Social Sciences > HG Finance > HG4001-4285 Finance management. Business finance.
Divisions:	Faculty of Management (FOM)
Depositing User:	Ms Rosnani Abd Wahab
Date Deposited:	04 Sep 2026 01:02
Last Modified:	04 Sep 2026 01:02
URII:	http://shdl.mmu.edu.my/id/eprint/16661

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