Energy Transition in West African Monetary Zone (WAMZ): Does Financial Development Matter?

This study provides valuable insights into the nexus between financial development and energy transition in the West African Monetary Zone (WAMZ), focusing on Nigeria, Ghana, Sierra Leone, Liberia, and Guinea. While financial development was measured using financial access, depth, and efficiency indexes, energy transition was measured by the share of the population with access to clean fuels for cooking and heating. For the data analysis, descriptive statistics, Levin, Lin, and Chu’s (LLC) panel unit root test, and a one-way error component random effects model were employed. The LLC panel unit root test results showed that all the variables are stationary, integrated with order zero, I(0). Specifically, the random effects results showed evidence of a positive and significant effect of financial service access on access to clean fuels for cooking and heating. This finding highlights the strategic role of financial access in driving the energy transition process in the WAMZ. Similarly, evidence of a positive and significant effect of financial depth on access to clean fuels for cooking and heating was established from the results. This finding is impressive as it explains that an increase in the depth of the financial system is critical to fostering energy transition in the WAMZ. The effect of financial efficiency on access to clean fuels for cooking and heating is positive. The causality test results established evidence of a joint causality from financial access, depth, and efficiency indexes to energy transition measure (share of the population with access to clean fuels for cooking and heating). Given the findings, this study recommends that policymakers should prioritize the expansion of credit availability and microfinance initiatives to deepen the financial system and synergize their efforts for greater financial efficiency to empower households and businesses to adopt renewable energy technologies and create more opportunities for transition to sustainable energy sources in the WAMZ.