The effect of renewable energy consumption on price stability in developing countries

Developing countries are highly exposed to inflation due to dependence on imported fossil fuels, volatile global energy markets, and weak institutional capacity to absorb external shocks. However, empirical evidence on the role of renewable energy in shaping price stability in developing economies remains limited, constituting the main research gap addressed in this study. Using panel data for 86 developing countries over 2000–2022 and employing GLS, Driscoll–Kraay, and System GMM estimators, the results show that a 1% increase in renewable energy consumption reduces inflation by up to 0.256%. This effect is robust across specifications and operates through lower production costs, reduced exposure to fossil fuel price volatility, and enhanced energy diversification. The study provides robust cross-country evidence on renewable energy’s inflation-stabilising effect using a rigorous econometric framework addressing endogeneity and cross-sectional dependence. Policy implications include scaling up competitive renewable energy procurement, investing in local manufacturing of clean-energy technologies, upgrading transmission infrastructure, integrating energy prices into inflation forecasting, and establishing stabilisation funds from resource revenues.