Abstract
This paper fills a gap in the macroeconomic literature on renewable sources of energy. It offers a definition of investment and analyzes the trends and determinants of this investment over the last decade for 35 advanced and emerging countries. We use a new multi-country historical dataset and find that investment has become a key driver of the energy sector and that its rapid growth is now mostly driven by China. Our econometric results suggest that investment is boosted by economic growth, a sound financial system conducive to low interest rates, and high fuel prices. We also find that some policy interventions, such as the introduction of carbon pricing schemes, or feed-in-tariffs, which require use of green energy, have a positive and significant impact on investment. Other interventions, such as biofuel support, do not appear to be associated with higher investment.
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