What is the causal relationship among geopolitical risk, financial development, and energy transition ? Evidence from 25 OECD countries

This study aims to investigate the causality among geopolitical risk, financial development and energy transition in Organization for Economic Co-operation and Development (OECD) countries. Using balanced panel data for 25 OECD countries from 2000 to 2019, we apply slope heterogeneity test, cross-sectional dependence test, unit root test, cointegration test, pooled mean group estimation, and panel Granger causality test to examine the dynamic impacts of geopolitical risk and financial development on energy transition across different national contexts. The findings suggest that, in the short term, geopolitical risk and financial development hinder energy transition in low-income OECD countries, while in high-income OECD countries, neither factor exerts a statistically significant impact on energy transition. In the long term, geopolitical risk exerts no significant influence on energy transition in low-income OECD countries, whereas financial development plays a significant promotive role. Conversely, in high-income OECD countries, geopolitical risk impedes energy transition, whereas financial development positively influences it. These results highlight the heterogeneous impacts of geopolitical risk and financial development on energy transition across nations and underscore the importance of strengthening global coordination, improving financial mechanisms for sustainable energy policies, mitigate geopolitical tensions.