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Finance for renewable energy: an empirical analysis of developing and transition economies


This paper examines the role of the financial sector in renewable energy (RE) development. Although RE can bring socio-economic and environmental benefits, its implementation faces a number of obstacles, especially in non-OECD countries. One of these obstacles is financing: underdeveloped financial sectors are unable to efficiently channel loans to RE producers. The influence of financial sector development on the use of renewable energy resources is confirmed in panel data estimations on up to 119 non-OECD countries for 1980–2006. Financial intermediation, in particular commercial banking, has a significant positive effect on the amount of RE produced, and the impact is especially large when we consider non-hydropower RE such as wind, solar, geothermal and biomass. There is also evidence that the development of the RE sector has picked up significantly in the period since the adoption of the Kyoto Protocol.

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Article provided by Cambridge University Press in its journal Environment and Development Economics.

Volume (Year): 15 (2010)
Issue (Month): 03 (June)
Pages: 241-274

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Handle: RePEc:cup:endeec:v:15:y:2010:i:03:p:241-274_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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  1. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  2. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August.
  3. Colin Mayer & Wendy Carlin, 1999. "Finance, Investment and Growth," Economics Series Working Papers 1999-FE-09, University of Oxford, Department of Economics.
  4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  5. Dennis Tirpak & Helen Adams, 2008. "Bilateral and multilateral financial assistance for the energy sector of developing countries," Climate Policy, Taylor & Francis Journals, vol. 8(2), pages 135-151, March.
  6. Christa N. Brunnschweiler, 2006. "Financing the alternative: renewable energy in developing and transition countries," CER-ETH Economics working paper series 06/49, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  7. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  8. Tadesse, Solomon, 2002. "Financial Architecture and Economic Performance: International Evidence," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 429-454, October.
  9. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1999. "Institutions, financial markets, and firm debt maturity," Journal of Financial Economics, Elsevier, vol. 54(3), pages 295-336, December.
  10. Tharakan, Pradeep J. & de Castro, Julio & Kroeger, Timm, 2007. "Energy sector assistance in developing countries: Current trends and policy recommendations," Energy Policy, Elsevier, vol. 35(1), pages 734-738, January.
  11. Williams, J.H. & Ghanadan, R., 2006. "Electricity reform in developing and transition countries: A reappraisal," Energy, Elsevier, vol. 31(6), pages 815-844.
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