Can energy aid drive greener economic growth? A global evidence.

Abstract

As a bilateral or multilateral international policy, foreign aid has the potential to contribute to economic growth in recipient countries, but the impact on green growth, especially aid flows to the energy sector, is unclear. Existing studies have paid little attention to the actual effects of whether energy aid is effective in raising green total factor productivity (GTFP) in recipient countries. To fill this gap, this study investigates the dynamic impact of energy aid on GTFP in recipient countries using balanced panel data for 92 countries from 2002 to 2019, and the study also examines potential sectoral heterogeneity and impact mechanisms. The results show that energy aid can effectively contribute to improving GTFP in recipient countries, but this scale effect varies significantly by aid type, revealing sectoral heterogeneity in the impact of energy aid. In addition, energy aid can indirectly enhance GTFP in recipient countries by promoting financial development, optimizing energy mix, and improving energy efficiency. Both government quality and human capital have a positive moderating effect on the energy aid-GTFP relationship. These findings reveal an important mechanism for energy aid to contribute to green economic growth and provide theoretical support and a practical basis for the formulation of more targeted aid policies.