Financialization and Its Influence on Energy Transition: The Role of Service Sector Growth and Infrastructure Investments in Developing Economies

This study examines the potential links between financialization (environmental tax (TX), foreign direct investment (FDI), and financial development index(FD)) and energy transition (ET) while accounting for service value-added (SV), infrastructure development (INF), and gross capital formation (INV) in 39 developing economies from 2000 to 2021. It uses the Two-step difference Generalized Method of Moments (GMM) and Panel Quantile regressions. The result of financialization in energy transition reveals a mix of outcomes; TX has a positive connection with ET while FD has a negative connection with ET for all the models. On the other hand, outcomes from FDI indicate a positive and significant connection with the ET for Models 1, 2, and 4, while Models 3 and 5 show a negative significant connection with energy transition. Regarding interaction terms, FDI*INF has a positively significant connection with ET, while TX*INF has a negatively significant connection with ET. These results culminate in the formulation of policy guidelines orientated toward SDGs, precisely the strategic policy for addressing SDG-7 and SDG-13. The study advocates that the sampled countries undertake measures to expedite the ET process by enhancing instructional development and investment while instituting an effective environmental taxation regime.