Political and economic uncertainty as barriers to renewable energy investment: A comparative panel ARDL analysis of advanced and emerging economies

This paper aims to investigate the extent to which political and economic uncertainty hinder renewable energy investment and compromise climate change mitigation objectives, specifically comparing the differential effects across advanced and emerging economies. We use a Panel Autoregressive Distributed Lag (P-ARDL) approach to analyze data from two distinct country panels, consisting of monthly frequency data between 2000 and 2023: 15 advanced economies and 20 emerging and developing economies. Empirical findings indicate a negative long-run relationship between the uncertainty measures and the share of renewable energy in total energy consumption in both panels at a statistical significance level. Most importantly, this dissuasive effect is significantly stronger in the emerging and developing economies, where the renewable energy share decreases by 0.062% for every 1% rise in economic policy uncertainty, while in advanced economies it decreases by 0.045%. The error correction model shows a moderate adjustment speed, which suggests that the adverse effects of uncertainty are persistent in both groups, therefore confirming the theoretical predictions of real options theory. The study identifies institutional quality, economic development, and investment climate as factors moderating the uncertainty effect. Policy implications point to an urgent need for stable and predictable regulatory frameworks, strong institutions, and targeted de-risking mechanisms that catalyze the global energy transition toward ambitious targets, especially in emerging economies.