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<p>Although there has been a significant increase in the amount of foreign assistance funding clean energy since 2010, the amount of renewable energy consumption in the Global South is still far too low, keeping many people in energy poverty. This paradox suggests that neither governance quality nor fiscal militarization are alone more effective predictors of aid effectiveness, but previous research has not simultaneously considered the impact of the two. This paper explains how foreign development assistance affects the momentum of energy transition, measured in terms of renewable energy consumption; it also explicitly takes into account the interactions between the effect of FDI and government policy effectiveness, arms import intensity, and energy import dependence. Using a hybrid econometric framework, we employ a balanced panel of 26 Global South economies (1999–2024), complemented by marginal effects analysis through NARDL- and bootstrap-based asymmetric estimations, alongside Fully Modified OLS (FMOLS) and Fixed Effects (FE) models. Results show that foreign aid exerts a positive long-run effect on energy transition only when government policy efficacy exceeds a critical threshold (GPE ≈ − 0.277 on the WGI scale). Below this threshold, effects are negligible; above it, an additional $1&#xa0;billion in aid is associated with a 0.0785 increase in the log of renewable energy consumption. This corresponds to an approximate 7.85% increase in the renewable share, which, evaluated at the sample mean, translates to a substantive increase of roughly 3.1% points when governance thresholds are met. Government policy efficacy exhibits a negative baseline effect, consistent with fossil-fuel rent entrenchment in resource-dependent economies, while arms imports significantly impede transition through fiscal crowding-out. We also detect strong asymmetry in aid responses (Wald χ<sup>2</sup> = 44.24,<i> p</i> &lt; 0.001) and structural breaks around major global events, with four statistically identified structural breaks in 2002, 2006, 2010, and 2018, of which the post-2010 shift, coinciding with doubled climate finance, is the most policy-relevant’ after which aid becomes significantly positive. Overall, results challenge linear aid-effectiveness assumptions and demonstrate that climate finance produces statistically significant, though economically incremental, effects exclusively when governance thresholds are met and fiscal militarization is contained, underscoring the need for conditioned, sequenced, and shock-responsive aid design, aligning with SDG 7 and SDG 16.</p>

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Aid, governance, and geopolitical risk: conditional drivers of energy transition momentum in the Global South

  • 期刊论文

  • 发表日期：

    2026年7月17日

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  • Saqib Munir,
  • Mushab Rashid,
  • Abdul Ghaffar,
  • Kashif Rashid

摘要

Although there has been a significant increase in the amount of foreign assistance funding clean energy since 2010, the amount of renewable energy consumption in the Global South is still far too low, keeping many people in energy poverty. This paradox suggests that neither governance quality nor fiscal militarization are alone more effective predictors of aid effectiveness, but previous research has not simultaneously considered the impact of the two. This paper explains how foreign development assistance affects the momentum of energy transition, measured in terms of renewable energy consumption; it also explicitly takes into account the interactions between the effect of FDI and government policy effectiveness, arms import intensity, and energy import dependence. Using a hybrid econometric framework, we employ a balanced panel of 26 Global South economies (1999–2024), complemented by marginal effects analysis through NARDL- and bootstrap-based asymmetric estimations, alongside Fully Modified OLS (FMOLS) and Fixed Effects (FE) models. Results show that foreign aid exerts a positive long-run effect on energy transition only when government policy efficacy exceeds a critical threshold (GPE ≈ − 0.277 on the WGI scale). Below this threshold, effects are negligible; above it, an additional $1 billion in aid is associated with a 0.0785 increase in the log of renewable energy consumption. This corresponds to an approximate 7.85% increase in the renewable share, which, evaluated at the sample mean, translates to a substantive increase of roughly 3.1% points when governance thresholds are met. Government policy efficacy exhibits a negative baseline effect, consistent with fossil-fuel rent entrenchment in resource-dependent economies, while arms imports significantly impede transition through fiscal crowding-out. We also detect strong asymmetry in aid responses (Wald χ2 = 44.24, p < 0.001) and structural breaks around major global events, with four statistically identified structural breaks in 2002, 2006, 2010, and 2018, of which the post-2010 shift, coinciding with doubled climate finance, is the most policy-relevant’ after which aid becomes significantly positive. Overall, results challenge linear aid-effectiveness assumptions and demonstrate that climate finance produces statistically significant, though economically incremental, effects exclusively when governance thresholds are met and fiscal militarization is contained, underscoring the need for conditioned, sequenced, and shock-responsive aid design, aligning with SDG 7 and SDG 16.