This paper investigates the role of financial institution development in promoting renewable energy generation in African economies. The paper is motivated by the increasing global emphasis on clean energy transition and the need to achieve the Sustainable Development Goals, particularly those related to affordable and clean energy and climate action. It focuses on identifying the mechanisms through which financial development influences renewable energy outcomes. Grounded in the Schumpeterian theory of finance, the paper argues that financial institutions facilitate innovation and structural transformation by allocating resources toward productive investments, including renewable energy projects. The analysis examines whether credit to the private sector serves as a mediating channel in this relationship. It also evaluates the moderating roles of institutional quality and natural resource rents. Using a Panel Autoregressive Distributed Lag (PARDL) model within a dynamic fixed-effects error correction framework, the findings reveal a nonlinear relationship. Financial institution development initially promotes renewable energy generation, but its positive effect weakens beyond a threshold of resource dependence. Institutional quality strengthens the effectiveness of financial development, while credit to the private sector fully transmits its impact on renewable energy generation. The results highlight the importance of strengthening financial systems, improving governance, and enhancing private sector credit allocation to support sustainable energy development in Africa.
Bonga‐Bonga et al. (Mon,) studied this question.