DIGITAL FINANCIAL INNOVATION, POLICY FRAMEWORKS, AND SUSTAINABLE ENERGY TRANSITIONS: A CROSS-COUNTRY STUDY ON THE DETERMINANTS OF GREEN INVESTMENT IN EMERGING MARKETS

Abstract

The intersection of financial technology (fintech) and renewable energy investment has garnered significant academic and policy interest. This study investigates the relationship between digital financial inclusion (DFI), institutional quality, and renewable energy investment in developing countries. Using an unbalanced panel dataset comprising household-level and small-scale enterprise observations from 22 developing economies over the period 2010–2023, the analysis employs probit, logit, and linear probability model. To address potential endogeneity concerns associated with DFI, the study further implements an instrumental variable (IV) probit approach, using mobile network coverage growth as an instrument. The results reveal evidence on the role of DFI and institutional quality in shaping renewable energy investment. While logit and linear probability models indicate that DFI exerts a statistically significant positive influence on renewable energy investment, particularly when complemented by stronger institutional quality, probit and clustered GLM estimates suggest weaker or insignificant effects, underscoring the sensitivity of results to estimation strategy. The interaction between DFI and institutional quality is positive and significant in some specifications but attenuated or negative in others, suggesting diminishing marginal complementarities at higher levels of institutional development. In contrast, socio-economic and structural factors, such as income, education, urbanization, electricity prices, and physical infrastructure, emerge as consistently important determinants of renewable energy investment across most models. The findings highlight that digital financial inclusion and institutional quality are important but not sufficient conditions for accelerating renewable energy investment in developing countries. These results imply that policy efforts to leverage fintech for sustainable energy transitions should be embedded within integrated strategies that combine digital finance expansion, institutional strengthening, and investments in human capital and infrastructure, thereby enhancing the enabling environment for inclusive and sustainable renewable energy adoption.