Governance and Climate Finance in the Developing World

We investigate the relationship between governance and climate finance, particularly in the energy transition context in developing countries. Our aim is to examine how governance qualities in developing countries impact financial contributions from contributor countries intending to fund mitigation projects in the energy sector. We have compiled a dataset of yearly climate finance contributions at the project level spanning from 2011 to 2019. Our analysis, which utilizes random forests and Least Absolute Shrinkage and Selection Operator (LASSO) estimations, reveals that climate finance contributions, particularly those for energy-related projects, are significantly linked to good governance, including a robust legal system, the rule of law, and accountability. Ultimately, this study provides valuable insights into the dynamics between governance and climate finance in developing countries and informs policy decisions to support effective climate action in the energy sector.