Financial markets and renewable energy transitions: Evidence from energy investment, domestic credit, market capitalisation and institutional quality

The increasing demand for financial investors, multilateral establishments, and private capital markets in renewable energy funding reveals the strategic role of finance in determining future energy directions. This study investigates the role of energy investment and financial market dynamics in enhancing clean energy adoption in the Next Eleven (N-11) countries, while considering the moderating role of institutional quality. The study disaggregates renewable energy into Solar Power, Wind Power, and Hydro Power, revealing more robust dimensions. The study used data from 2000 to 2024 and adopted the Driscoll-Kraay Fixed Effects to handle cross-sectional dependence and heteroskedasticity. The results show that energy investment has a constant, significant positive direct contribution to both solar photovoltaic and wind power capacity. Domestic credit has a significant positive effect on solar PV, wind power, and hydropower. Market capitalisation effect is also positive and significant in the case of all renewable power capacities, indicating the influence of deeper and more liquid capital markets in attracting capital in renewable power infrastructure. The moderation test showed domestic credit to have consistently positive marginal effects that strengthen with institutional quality across all technologies. Market capitalisation effects diverge by technology: solar shows declining effects under stronger institutions, while wind and hydro shift from negative effects under weak institutions to strongly positive under robust ones. The study recommends that by deepening and greening domestic credit markets, creating vibrant capital markets for clean energy, and improving institutional frameworks, the N-11 can accelerate their transition to sustainable energy systems and mobilise private investment at scale.