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<p>Financial development and geopolitical risk play a decisive role in shaping the energy transition of emerging economies. Well-functioning financial systems facilitate investment in clean technologies, while geopolitical instability increases the urgency to diversify energy sources away from volatile fossil fuel markets. Therefore, this study examines the impact of financial development and geopolitical risk on renewable energy consumption in 10 emerging economies from 1985 to 2022, using regime-switching models, namely the panel threshold autoregressive (PTAR) and panel smooth transition autoregression (PSTAR) models, with banks’ domestic credit to the private sector as the threshold variable. The results reveal nonlinear dynamics, with thresholds of 40.171 in the PTAR model and 35.705 and 122.9 in the PSTAR model, further confirmed by robust linear and quadratic generalized method of moments estimations that exhibit a linear coefficient of 0.058 and a quadratic coefficient of − 0.0005. At the same time, the coefficients for geopolitical risk are 0.096 and 0.315, respectively. These findings suggest that governments should expand financial instruments dedicated to green investment, design targeted incentives that lower the cost of capital for renewable projects, and integrate energy diversification into risk management frameworks. In addition, strengthening renewable energy targets, institutional capacity, and building resilience to external shocks are essential for ensuring energy security and fostering sustainable development.</p>

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Geopolitical risk and financial development: nonlinear effects on renewable energy in emerging economies

  • 期刊论文

  • 发表日期：

    2026年1月10日

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  • Olfa Zarrad,
  • Hamdi Becha,
  • Maha Kalai,
  • Kamel Helali

摘要

Financial development and geopolitical risk play a decisive role in shaping the energy transition of emerging economies. Well-functioning financial systems facilitate investment in clean technologies, while geopolitical instability increases the urgency to diversify energy sources away from volatile fossil fuel markets. Therefore, this study examines the impact of financial development and geopolitical risk on renewable energy consumption in 10 emerging economies from 1985 to 2022, using regime-switching models, namely the panel threshold autoregressive (PTAR) and panel smooth transition autoregression (PSTAR) models, with banks’ domestic credit to the private sector as the threshold variable. The results reveal nonlinear dynamics, with thresholds of 40.171 in the PTAR model and 35.705 and 122.9 in the PSTAR model, further confirmed by robust linear and quadratic generalized method of moments estimations that exhibit a linear coefficient of 0.058 and a quadratic coefficient of − 0.0005. At the same time, the coefficients for geopolitical risk are 0.096 and 0.315, respectively. These findings suggest that governments should expand financial instruments dedicated to green investment, design targeted incentives that lower the cost of capital for renewable projects, and integrate energy diversification into risk management frameworks. In addition, strengthening renewable energy targets, institutional capacity, and building resilience to external shocks are essential for ensuring energy security and fostering sustainable development.