Effect of renewable energy on economic growth in sub‐Saharan Africa: Role of institutional quality

Abstract

The development of renewable energy is considered as an important step toward sustainable development. In sub‐Saharan African (SSA) countries, institutional quality can play an essential role in encouraging investment and implementation of policies favoring renewable energy. This paper examines the role of institutional quality in the effect of renewable energy on economic growth across 25 SSA countries from 2002 to 2018. The results from the dynamic panel threshold model reveal a significant threshold effect of institutional quality on the contribution of renewable energy to economic growth. While renewable energy consumption positively contributes to economic growth, its impact is notably amplified when the institutional quality index, set at 0.304, is above the threshold. Our findings remain robust when altering institutional quality indicators. In terms of economic implications, improving overall institutional quality by promoting good political, economic, and institutional governance could significantly increase the contribution of renewable energies to economic growth in SSA countries.