The Role of Development Assistance, Foreign Direct Investments, Financial Development, and Institutional Quality in Fostering Energy Transition in Africa

Despite the growing importance of foreign direct investment, official development assistance, financial development, and institutional quality in Africa, their plausible combined impact on energy transition has not been explored, creating a void in literature. Our paper contributes to the literature by analysing the effect of foreign direct investment, official development assistance, financial development, and institutional quality on energy transition in Africa between 2009 and 2020. The panel autoregressive distributed lag (PARDL) model was employed for the analysis. The empirical evidence shows that foreign direct investment, official development assistance, and institutional quality significantly increased renewable energy consumption on the continent in the long run. On the other hand, financial development, measured as domestic credit to private sector by banks, tends to reduce renewable energy consumption on the continent both in the short and long runs. This indicates that foreign direct investment, official development assistance, and institutional quality foster just energy transition in Africa, while financial development tends to inhibit energy transition on the continent. These findings underscore the necessity for nuanced policy interventions that integrate foreign direct investment, official development assistance with institutional quality objectives, for the promotion energy transition. Policies are also needed to deliberately encourage banks to provide credit facilities for energy transition investments in Africa.