Does Climate Finance Reduce Energy Poverty? Evidence from Institutional Quality Thresholds in the Global South

This study investigates whether climate finance reduces energy poverty in the Global South and, more importantly, whether its effectiveness depends on institutional quality. Using a balanced panel of 45 countries across Africa, South Asia, and Latin America, the study applies Dynamic Common Correlated Effects (DCCE) estimators, instrumental-variable techniques, and panel threshold regression models that account for cross-sectional dependence, heterogeneity, and endogeneity. The baseline results show that climate finance does not exert a statistically significant average effect on energy poverty across the full sample, while institutional quality consistently reduces energy deprivation. However, threshold analysis reveals a significant non-linear relationship. An institutional quality threshold of 0.370 is identified, above which climate finance produces statistically significant reductions in energy poverty, whereas no meaningful effect is observed below the threshold. The results indicate that climate finance is not universally effective; rather, its impact depends on the institutional environment within recipient countries. Robustness checks using alternative measures of energy poverty, instrumental-variable estimation, and alternative estimators confirm the stability of the findings. The study concludes that strengthening institutional quality is a prerequisite for translating climate-finance inflows into improved energy access outcomes. Policies aimed at achieving a just energy transition should therefore combine increased climate-finance mobilization with reforms that enhance governance capacity, accountability, and implementation effectiveness.