Unveiling the energy saving role of banking performance in Sub-Sahara Africa

Abstract

This article examines the effect of commercial bank performance on an indicator of energy efficiency (i.e. energy intensity) while controlling for the mediating effect of political institution. To achieve this goal, the study develops a theoretical model based on the neoclassical theory of the firm that links energy efficiency to bank sector development, and a unique bank-based data by Andrianova et al. (2015) for 43 Sub-Saharan African countries from 1998 to 2012. The principal component analysis is used to derive a composite bank-based development index from different bank balance sheet performance indicators- return on asset, asset quality, bank capitalization, managerial inefficiency and financial stability. The two-stage system generalized method of moment (Sys-GMM) technique was used. The results reveal that, both in the short- and long-run, improved banking performance fosters energy efficiency improvements in sub-Saharan Africa, but this is compromised by democracy (institutional quality). Thus, to achieve energy efficiency improvements, specific initiatives should be implemented to boost the development of the banking sector while also ensuring that democratic governance in the sub-region weans itself off things that impede the progress of the real sector. More ambitiously, creating a Green Bank may be necessary to stimulate energy efficiency investments in the sub-region. (C) 2018 Elsevier B.V. All rights reserved.

Keywords

Energy intensity; Banking performance; Political institution; System GMM; Sub-Sahara Africa

Published in

Energy Economics
2018, volume: 74, pages: 828-842
Publisher: Elsevier {BV}

SLU Authors

• Amuakwa Mensah, Franklin

  • Department of Economics, Swedish University of Agricultural Sciences
    

Sustainable Development Goals

SDG7 Affordable and clean energy
SDG8 Decent work and economic growth
SDG16 Peace, justice and strong institutions


UKÄ Subject classification

Economics


Publication identifier

DOI: https://doi.org/10.1016/j.eneco.2018.07.031

Permanent link to this page (URI)

https://res.slu.se/id/publ/96124