Energy poverty and financial development: Evidence from developing countries
Ficawoyi Donou‐Adonsou, Hem C. Basnet, Samuel Mathey
Abstract
This study investigates the influence of the financial system on energy poverty in developing countries using a dataset comprising 134 countries categorized as low, lower middle, and upper middle-income economies from 2000 to 2021. The study employs an instrumental variables panel quantile regression method, which allows for an assessment of the impact on energy poverty across different conditional distributions, going beyond the traditional focus on the conditional mean used in existing literature. The overall findings suggest that financial development indeed plays a role in reducing energy poverty. When considering the conditional mean, the results indicate that financial institutions contribute to the reduction of energy poverty, while financial markets do not exhibit a similar effect. However, by employing quantile regressions, the study provides additional insights into these findings, revealing that the impact of the overall financial system and financial institutions varies across different distributions of energy poverty. Further analysis suggests that the impact also varies across income levels. Specifically, concerning access, depth, and efficiency, the findings highlight the importance of financial institutions in alleviating energy poverty. Each component of financial institutions demonstrates significance in reducing energy poverty in developing nations, which stands in contrast to the components of financial markets, thereby providing valuable insights for policymakers and stakeholders in the field.