Governance and renewable energy investment in MENA: How trade matters?

Tunisia - 15 March 2018

Trade topics: Energy policy

Middle East and North Africa (MENA) countries have recently developed their renewable energy markets. However, their rate of investment in renewable energy remains small as compared to other regions in the world, despite their relative abundant endowments, particularly in wind and solar. While literature identifies some barriers to investment in renewable energy, we assume that the investment of MENA countries could be impeded by specific governance factors. Furthermore, we consider recent literature showing that trade openness reduces the negative effects of weak governance. In this paper, we empirically investigate the link between governance, openness and renewable energy investment in MENA region using a panel data for 15 MENA countries over the period 1996-2013. Our results confirm that governance issues largely determine investments in renewable energy in MENA region. In addition, this effect seems to be conditional on trade regime. Our results are robust to several alternative measures of governance and confirm that bad governance and distorted trade policy are complements in the explanation of the low level of investment of MENA countries in renewable energy.

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