Clean Energy and Financial Development as Determinants of Sustainable Development in sub-Saharan Africa

Abstract

Sub-Saharan Africa is prominently involved in a range of established policies and international initiatives aimed at advancing clean energy and financial development, which are pivotal for addressing environmental concerns, stimulating economic growth, and promoting sustainable investment. However, access to clean energy, insufficient political commitment, and a lack of clear policy guidance remain major issues. This study investigated the relationship between clean energy access, financial development, and sustainable development in sub-Saharan Africa, aiming to address critical research gaps. Financial Development exhibited a positive and significant relationship with gross domestic product per capita via analysis using panel data and employing panel Fully Modified Least Squares (FMOLS) regression, after determining that all the variables are stationary at I(1) except one, which is stationary at I(0). This suggests that a well-developed financial sector positively impacts economic growth by facilitating access to capital. Also, Renewable Energy Consumption demonstrated a negative association with gross domestic product per capita, possibly due to initial investment costs and technological constraints. The interaction effect between financial development and renewable energy also showed a negative impact on gross domestic product per capita, indicating a mitigating influence when both factors are considered together. Additionally, Trade Openness and Foreign Direct Investment exhibited notable impacts on gross domestic product per capita, with higher levels of trade openness and foreign direct investment potentially leading to lower economic growth. Based on the findings, the policy recommendations of this study are to strengthen the financial sector with efficient credit allocation, promote clean energy adoption despite challenges, mitigate trade openness impacts through diversification, and evaluate FDI for sustainable development alignment that enhances local benefits.