How does political stability affect renewable energy finance? International evidence

Renewable energy financing (REF) embodies both energy and financial attributes. Despite the extensive attention to the many factors affecting REF, the relationship between political stability and REF remains unclear. Accordingly, this study empirically examines the specific impact of political stability on REF using cross-country panel data from 2002 to 2020. The results indicate that political stability significantly promotes REF, and this conclusion remains robust across various tests, including explanatory variable changes, sample period adjustments, and addressing potential endogeneity issues. Heterogeneity analysis shows that political stability facilitates financing for wind and hydropower and promotes REF in non-OECD and non-OPEC countries. Furthermore, mechanism analysis shows that political stability promotes REF through domestic channels (increased energy demand and reduced investment risk) and international channels (increased foreign capital inflows and international aid). Finally, the industrial and economic endowments of a country exhibit threshold effects, influencing the direct impact of political stability on REF and the mechanisms through which political stability promotes REF. This study furthers the understanding of REF and provides theoretical support for policymakers in different countries to maintain political stability and promote the prosperity of the renewable energy sector.