How does green finance accelerate the shift to energy revolution in developing countries?

This study aims to analyze the effects of green finance on the energy transition in 63 developing countries over the period 2000-2022. We address this assessment by using fixed effects (OLS and Driscoll-Kraay), followed by Lewbel (2012) and Kiviet (2020) instrumentation strategies to manage endogeneity. We found evidence that green finance enhances energy transition in developing countries, and that this effect is mediated by green technologies, human capital, and ecosystem conservation. Additional results reveal that economies with higher levels of government efficiency, political stability, voice and accountability, rule of law, quality of regulation, and lower levels of corruption and natural resource extraction are associated with a higher energy transition. Furthermore, the effect is positive in low- and upper-middle-income countries but insignificant in low-income countries. Overall, our findings highlight the need to develop and diversify green financial capital. Specifically, creating clear and concise green project plans and the widespread dissemination of knowledge about renewable energy sectors are necessary to attract green funds and ensure sustainable energy transition. Efforts are also needed to establish monitoring and evaluation mechanisms to prevent greenwashing issues during the process of green transformation.