The Effect of Institutional Quality on Renewable Energy: Evidence from Developing Countries

Abstract

Renewable energy has changed the development paradigm by prioritizing environmental sustainability in every stage of the country development. Therefore, this research specifically provides an overview of how the institutional quality is used as a basis for policy in developing countries. The research results show that the institutional quality with indicators of government effectiveness, voice and accountability have a significant effect, while regulatory quality and rule of law do not have a significant effect on renewable energy. Then, tax revenue, foreign direct investment, domestic credit have a significant effect, but government expenditure does not have a significant effect on renewable energy. These results are proof that every country must have strong quality institutions with a clear and comprehensive policy scheme considering that energy transition targets are not carried out easily, so they require large amounts of financing, especially from the private sector. The government fiscal space tends to be narrow, which is an obstacle in developing countries in allocating costs for the energy transition, so it must be directed at financing strategies contained in appropriate policies.