Governance Quality and Renewable Energy Investment in Emerging Markets: Evidence Against the FDI Mediation Hypothesis

Nada OUIA; Rachid EL BETTIOUI

doi:10.23882/ijdam.26272

Authors

Nada OUIA FSJES-Mohammedia, Hassan II University, Casablanca https://orcid.org/0009-0001-7767-2396
Rachid EL BETTIOUI Ibn Zohr University of Agadir, Morocco https://orcid.org/0000-0002-0251-9426

DOI:

https://doi.org/10.23882/ijdam.26272

Keywords:

Renewable energy investment, Foreign direct investment, Mediation analysis, Threshold effects

Abstract

This study examines whether institutional quality influences renewable energy investment indirectly through foreign direct investment (FDI). Using panel data for 12 major emerging markets over 2015–2022, we apply a three-step mediation framework with two-way fixed effects and conduct a threshold analysis across income levels. Governance quality has a positive and statistically significant effect on renewable energy investment, but this effect does not operate through FDI. Neither the governance-to-FDI nor the FDI-to-renewable energy channels are significant, and the indirect effect explains only a negligible share of the total impact. Threshold results show that governance effects materialize only above GDP per capita levels of approximately $6,000–7,000, suggesting that institutional quality and economic development are complementary rather than substitutable. These findings indicate that improving governance alone is insufficient to attract renewable energy investment in lower-income settings. The results challenge conventional assumptions in the green finance literature and provide new evidence on the conditional role of institutions in the energy transition.

Author Biographies

Nada OUIA, FSJES-Mohammedia, Hassan II University, Casablanca

PhD Student in Economics and Management
PASS Scholarship holder
MSc Economic Analysis; MSc Financial Markets and Applied Economics Faculty of Legal, Economic and Social Sciences of Mohammedia, Hassan II University of Casablanca, Morocco
Research Laboratory Member of Economics, Management, Finance and Organizational Strategies.

Rachid EL BETTIOUI, Ibn Zohr University of Agadir, Morocco

Professor at Ibn Zohr University, Agadir, Morocco. PhD of Management and Economics at Hassan II University of Mohammedia
Laboratory member of Research “Performance Management MAPES” ENCG of Agadir
Symposium DFIE/ENCGA Chair
Member of tenure committee of Minnesota Crookston University USA
President of ARED association of research.
Ex-Director of High Institute of Applied Technology of Vocational Department
Ex- Business Supervisor in Fondation Zakoura Education
Ex- Member of CPDH, Ministry of Interior, Morocco
Ex- Audit Studies Project Supervisor in the American Company Nielsen
Ex- Administrator Member with United Nations Organization
Author of many scientific articles and Editors of many books in social sciences.

References

Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown Business.

Akerlof, G. A. (1970). The market for ”lemons”: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488-500.

Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173-1182.

Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135.

Buchanan, B. G., Le, Q. V., & Rishi, M. (2012). Foreign direct investment and institutional quality: Some empirical evidence. International Review of Financial Analysis, 21, 81-89.

Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386-405.

Globerman, S., & Shapiro, D. (2002). Global foreign direct investment flows: The role of governance infrastructure. World Development, 30(11), 1899-1919.

IRENA. (2023). Renewable Energy Statistics 2023. International Renewable Energy Agency. Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? American Economic Review, 94(3), 605-627.

Klein, B., Crawford, R. G., & Alchian, A. A. (1978). Vertical integration, appropriable rents, and the competitive contracting process. Journal of Law and Economics, 21(2), 297-326.

Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), 473-491.

North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press.

North, D. C., & Weingast, B. R. (1989). Constitutions and commitment: The evolution of institutions governing public choice in seventeenth-century England. Journal of Economic History, 49(4), 803-832.

Popp, D., Hascic, I., & Medhi, N. (2011). Technology and the diffusion of renewable energy.

Energy Economics, 33(4), 648-662.

Romano, A. A., & Scandurra, G. (2014). Investments in renewable energy sources in countries grouped by income level. Energy Sources, Part B: Economics, Planning, and Policy, 9(4), 423-432.

Wei, S. J. (2000). How taxing is corruption on international investors? Review of Economics and Statistics, 82(1), 1-11.

Williamson, O. E. (1985). The Economic Institutions of Capitalism. Free Press.