Foreign aid and energy: Analyzing energy aid’s impact on sub-Saharan African countries’ electrification development

Abstract

Despite the continued flows of foreign aid on energy development to the sub-Saharan African region, more than half of the population lacks access to electricity. Achieving Sustainable Development Goal 7 and providing clean energy requires further development aid in the region. However, aid’s role in development has so far been inconclusive. Research on the impact that finance flows in different energy sectors, such as energy generation and energy policy, hasn’t gained much attention, mainly due to the lack of disaggregated data available until now. This research thus tries to look into energy aid’s impact on electrification rate through energy sub-sectoral aid data. This study uses two regression models to study aid’s impact on energy development in sub-Saharan African regions. An ordinary least squares model was built to analyze energy aid’s impact on the electrification rate with other macroeconomic factors such as economic growth, inflation, and trade openness, as well as countries’ governance scores. An autoregressive distributed lag model is used to study sector-specific aid’s impact on electrification rate in different country groups based on income. Results from the ordinary least squares model confirm aid’s inconclusive role in energy development but prove that an increase in inflation rate is correlated with higher electrification rate changes. Trade openness showed no significance, while governance changes indicate a positive relationship with changes in the electrification rate. The panel autoregressive distributed lag model found that aid’s impact differs among country groups. The electrification rate in the two lower income groups correlated with different energy aid. In comparison, only the electrification rate in the past period correlated with electrification in higher-income country groups. This study calls for future research to look into countries that receive large blocks of energy aid but shows little development, as well as countries that, despite receiving low amounts of energy aid, they have increased electrification rates, to understand what other factors influence the increase in electrification rate in SSA countries.