Abstract
Empirical evidence on general aid volatility reveals that it is a limiting factor that impedes aid effectiveness. Unlike the previous studies focusing on aggregate aid volatility, this paper seeks to analyze the energy aid volatility across sub-sectors of energy aid in 67 aid-recipient countries during 2002–2019, given that energy aid effectiveness is essential for achieving the targets of sustainable development goals (SDG)-7. Specifically, we examine the contribution of different sub-sectors of energy aid in total energy aid volatility, identify sectoral volatility trends, and explore the interlinkages between the aid shocks of various sectors of energy aid. Volatility measures are based on the squared residuals obtained from a regression of aid on trend and the trend square, calculated separately for each country and energy aid sector. Findings reveal that renewable aid is the most important contributor to total energy aid volatility, particularly in lower-middle-income countries. Policy aid volatility is highest in low-income countries. We hardly observe a decline in the volatility of energy aid and its sub-sectors, except for nuclear aid. Moreover, we notice a lack of sectoral greening of energy aid as donors do not shift disbursement targets from non-renewable to renewable energy generation sources. From a policy perspective, these findings suggest that donors and recipients need to work on reducing energy aid volatility by focusing on specific energy aid sectors that majorly cause volatility to enhance energy aid effectiveness. Findings also call for understanding the factors that inhibit the greening of energy aid in terms of shifting concession resources from non-renewable to renewable energy generation.
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Data availability
The datasets analyzed during the current study are available from the corresponding author upon reasonable request.
Notes
The study uses the amount of disbursed aid in the energy sector rather than commitments in order to measure actual flows in the energy sector, given the argument that commitments are official, written obligations by the donors, which may not end up with actual disbursement due to several exogenous factors (Bulíř and Hamann 2003; Kim 2018).
We do not normalize aid with GDP as GDP displays more volatility than the population, thus giving an imprecise measure of aid volatility and energy aid as a proportion of GDP provides smaller values for many countries.
Using a fixed effect estimator is unsuitable for estimating the above equations involving positive and negative values of error terms as the method purges out country-specific heterogeneity by applying within transformations.
We have used graphical representation to show the trends in energy aid volatilities. As the regression analysis portrait, the same results, we have not presented those.
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Acknowledgements
The authors acknowledge the comments and suggestions received from the seminar participants on an earlier version of the paper presented in the European Economics and Finance Society Twentieth EEFS Annual Conference in conjunction with Cracow University of Economics Krakow, Poland, 16 to 19 June 2022 and 3rd International Conference on Energy, Economics and environment (online) held in Cappadocia, Turkey, during 4 to 6 July 2022.
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Panika Jain: conceptualization, methodology, software, formal analysis, investigation, data curation, and writing—original draft. Samaresh Bardhan: supervision, conceptualization, methodology, validation, and writing—review and editing.
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Jain, P., Bardhan, S. Energy aid volatility across developing countries: a disaggregated sectoral analysis. Int Econ Econ Policy 20, 457–483 (2023). https://doi.org/10.1007/s10368-023-00563-y
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DOI: https://doi.org/10.1007/s10368-023-00563-y
Keywords
- SDG-7
- CRS database
- Aid volatility
- Energy sector aid
- Developing countries
- Aid effectiveness
- Climate finance