Enhancing energy transition: The role of private foreign investment and aid in developing nations

Private foreign investment and aid have emerged as critical channels through which the world tackles climate change. Over the years, wealthy individuals and organisations have significantly contributed to various sustainability initiatives, with a particular focus on advancing sustainable energy. This paper investigates the impact of private foreign investment and aid on energy transition initiatives in developing countries using a large sample of 102 developing countries from 1990 to 2021. Our results indicate that private foreign investment and aid are positively associated with sustainable energy production. Further analyses reveal that this impact is more pronounced in countries with low perceived corruption, while financial crises exert negative impact on the relationship. Continental analysis shows that countries in the African and American regions benefit more from private foreign investment than other continents. Our findings are robust to the alternative measurement of variables and econometric models, including the two-step system generalised method of moments. Based on the findings, we recommend that developing countries strengthen their institutional and governance structures to attract greater private financial inflows to boost efforts towards energy transition. • This study examines the role of private foreign investment and aid in promoting sustainable energy production across 102 developing countries between 1990 and 2021. • Empirical results show a positive and significant impact of private foreign investment and aid on energy transition, with stronger effects observed in countries with lower levels of perceived corruption. • Financial crises weaken the positive relationship between private financial flows and sustainable energy production, while regional analysis indicates that African and American countries benefit more from such inflows compared to other regions.