Low-carbon energy investment in developing economies: the prospect of foreign finance inflow

Purpose Developing economies face severe challenges in financing low-carbon energy investment, which impedes attaining Sustainable Development Goals (SDGs), especially SDGs 7 and 13, and the net-zero target by 2050. As a result, the authors aim to examine the prospects of foreign finance inflow for financing low-carbon energy in developing countries. Design/methodology/approach This study disaggregates foreign finance inflow into foreign direct investment (FDI) inflow, remittance and external debt, collecting data from 94 developing nations between 1999 and 2023 for analysis. The authors apply the novel two-step system-generalised method of moments (GMM), Pool-fully modified ordinary least squares (FMOLS) and Driscoll and Kraay standard error estimators. Findings The outcome of the analysis reveals that FDI inflows enhance the development of low-carbon energy in developing economies, while remittance and external debt slow the development of low-carbon energy. Research limitations/implications The limitation of this study is based on the estimators, that is, two-step system-GMM, Pool-FMOLS and Driscoll and Kraay standard error. These estimators produce long-term results without short-run insight, thereby supporting long-run policy. Despite the caveat, the policy outcome of the study is appropriate because green energy development requires long-term policy measures to drive the transition pathways. Practical implications The evidence offers practical implications on the prospect of foreign financing options for developing economies to drive needed green energy resources investment to propel the low-carbon energy transition in these countries. The practical policy implications of the study can accelerate the green energy transition for energy security and climate actions in developing nations. In addition, the study practically contributes towards SDG attainment, especially SDGs 7 and 13. Originality/value The authors make valuable, practical policy contributions towards clean energy financing in 94 developing economies. This study covers a wider sample, which offers reliable evidence for generalisation, unlike existing literature. Also, the authors disaggregated financial inflows into three key components: FDI inflows, remittances and external debt to ascertain the important channel for green financing in developing nations with a paucity of green funding. As such, the study is valuable, contributing to universal energy access and climate actions in the world’s most vulnerable societies.