Can international financial assistance drive the clean energy transition in developing countries?

Manh-Tien Bui; Thai-Ha Le; Manh-Tien Bui; Thai-Ha Le

doi:10.3934/GF.2026008

Green Finance

2026, Volume 8, Issue 2: 214-235. doi: 10.3934/GF.2026008

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Research article

Can international financial assistance drive the clean energy transition in developing countries?

Manh-Tien Bui ¹,
Thai-Ha Le ^{2
,
,}

1.
Crawford School of Public Policy, the Australian National University, Australia
2.
VinUniversity & VinFuture Foundation, Hanoi, Vietnam; IPAG Business School, Paris, France

Received: 19 October 2025 Revised: 13 March 2026 Accepted: 03 April 2026 Published: 15 April 2026
JEL Codes: F30, O13, Q56

In this study, we investigated the role of international financial assistance in promoting clean energy development and environmental sustainability across 89 developing countries from 2000 to 2021. Using a Panel ARDL model with the Pooled Mean Group (PMG) estimator, assesses assessed the short- and long-run effects of global financial flows directed toward clean energy research, development, and production (RD&P). The findings revealed that while international financial assistance contributes to reductions in CO₂ emissions in the long run, its influence on the renewable energy share in total energy supply remains weak and statistically insignificant. This outcome reflects the structural challenges facing developing economies, particularly rapid energy demand growth driven by industrialization and limited absorptive capacity for green technologies. The results further highlight the critical role of governance quality in shaping the effectiveness of external finance: Stronger governance systematically amplifies environmental returns in upper-income economies while influencing the relationship differently in lower-income settings. Policy implications suggest that international support should not only increase in scale but also be better targeted and better governed, emphasizing system-enabling investments, institutional strengthening, and long-term policy alignment to ensure a sustained and inclusive clean-energy transition.
- international financial assistance,
- renewable energy,
- developing countries,
- energy transition,
- environmental impacts
Citation: Manh-Tien Bui, Thai-Ha Le. Can international financial assistance drive the clean energy transition in developing countries?[J]. Green Finance, 2026, 8(2): 214-235. doi: 10.3934/GF.2026008

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Abstract

In this study, we investigated the role of international financial assistance in promoting clean energy development and environmental sustainability across 89 developing countries from 2000 to 2021. Using a Panel ARDL model with the Pooled Mean Group (PMG) estimator, assesses assessed the short- and long-run effects of global financial flows directed toward clean energy research, development, and production (RD&P). The findings revealed that while international financial assistance contributes to reductions in CO₂ emissions in the long run, its influence on the renewable energy share in total energy supply remains weak and statistically insignificant. This outcome reflects the structural challenges facing developing economies, particularly rapid energy demand growth driven by industrialization and limited absorptive capacity for green technologies. The results further highlight the critical role of governance quality in shaping the effectiveness of external finance: Stronger governance systematically amplifies environmental returns in upper-income economies while influencing the relationship differently in lower-income settings. Policy implications suggest that international support should not only increase in scale but also be better targeted and better governed, emphasizing system-enabling investments, institutional strengthening, and long-term policy alignment to ensure a sustained and inclusive clean-energy transition.

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