Towards Sustainable Economic Growth in Africa: The Role of Financial Development and Energy Transition Policies

Abstract

This study examined the nexus between financial development, energy transition policies, and economic growth in Africa over the period 2000–2024. The study was motivated by the growing need to understand how financial sector development and the transition toward sustainable energy systems contribute to economic growth across African economies. Secondary data were obtained from reputable international databases and analysed using advanced panel econometric techniques to evaluate both the individual and combined effects of financial development indicators, energy transition measures, and selected macroeconomic control variables on economic growth. The findings reveal that financial development significantly promotes economic growth through improved capital market efficiency, enhanced liquidity, and stronger stock market mechanisms. However, domestic credit to the private sector was found to exert a negative effect on growth when credit allocation is inefficient and directed toward unproductive sectors. The results further show that renewable energy consumption positively and significantly influences economic growth, indicating that energy transition policies are not only environmentally desirable but also economically beneficial. In contrast, energy intensity exhibited relatively weak effects, suggesting that many African economies still face structural constraints in achieving substantial energy efficiency gains. Additionally, population growth and exchange rate fluctuations were found to influence economic performance, underscoring the importance of macroeconomic stability in sustaining growth outcomes. The study concludes that financial development and energy transition policies are complementary drivers of economic growth in Africa. Therefore, policymakers should adopt integrated frameworks that strengthen financial intermediation, promote renewable energy investments, improve energy efficiency, and maintain macroeconomic stability. Such coordinated strategies are essential for achieving inclusive, resilient, and sustainable economic growth across the African continent.