Impact of renewable energy expansion on government debt in developing countries

Abstract

This study examines the relationship between energy transition and government debt in 15 developing countries using a dynamic generalized method of moments (GMM) estimation backed by a theoretical background. Results show that government debt is highly persistent, with past debt strongly influencing current levels, consistent with path dependency theory. An increased share of renewable energy in the energy basket modestly reduces government debt by lowering energy import costs and reducing long-term fiscal burdens from environmental and health-related expenses. The study recommends developing green finance markets, improving digital access, attracting green FDI, and establishing local renewable energy plants to reduce energy imports and promote sustainable growth.