Investigating the impact of financial inclusion and institutional performance on energy poverty in developing economies

Abstract

Aside from all the other factors, the connection between energy poverty (EP) and financial inclusion (FINC) in developing countries has not been given enough attention. This study applies a theoretical framework to define the optimal associations, which means it captures the best relations between FINC and EP. This research analyzes the impact of FINC on EP in a panel of 66 developing countries from 2004 to 2022. The countries selected constitute a broad set of developing economies with differing degrees of financial inclusiveness, institutional quality, government expenditures, economic growth, and human capital, thus making them representative of the developing world. The study employs dynamic common correlated effects and method of moments quantile regression estimation techniques to account for the varying effects that inclusion has on different quantiles. The main finding is that inclusion greatly lessens EP, which is its most significant contribution to the services of energy in developing countries. The study empirically validates the Armey curve for selected countries, demonstrating a nonlinear relationship between government spending and EP. This study adds to an enriched comprehension of this relationship and offers policy recommendations that enhance rural financial services with mobile banking and microfinance for clean energy investments and integrate financial literacy with energy initiatives. Strengthen governance and attract private investment through transparent regulations and public-private partnerships.