Institutional quality and renewable energy capital flows in Africa

Abstract

AbstractThis paper investigates the linear and nonlinear relationship between institutional quality and renewable energy capital flows across 20 African countries between 2002 and 2017. The empirical evidence is based on the generalised method of moments estimation technique. The findings suggest that institutional quality has a significant and propelling effect on renewable energy capital flows, implying that strong institutions induce investments in renewable energy in Africa. From an extended analytical exercise, the study further shows a nonlinear inverted U-shaped relationship between institutional quality and energy capital flows. This indicates that the enhancing effect of institutional quality on energy capital flows is achieved at a certain threshold level. In the extreme case, the impact of institutional quality on energy capital flows diminishes. The study recommends that African countries initiate reforms to tame any adverse effect of institutional quality on renewable energy investments in its extreme case. Thus, African countries should develop strong institutions and reinforce their regulatory frameworks because strong institutions can improve societal welfare by reducing political, social and economic unpredictability while boosting trust and investment in renewable energy.