Does institutional quality condition the impact of renewable energy on income inequality? Evidence from 28 Asian economies

Abstract

The transition toward renewable energy is often assumed to yield inclusive economic benefits, yet empirical evidence remains mixed. The purpose of this study is to examine the moderating influence of governance on the relationship between renewable energy consumption and income distribution across 28 Asian economies over the period from 2001 to 2021. The study employs a dynamic panel regression model using the System Generalized Method of Moments (GMM) estimator to address potential endogeneity problems and unobserved country-specific heterogeneity. Furthermore, a composite institutional quality index is constructed using principal component analysis to capture the multidimensional nature of governance. The findings demonstrate the critical influence of institutional quality on the correlation between renewable energy consumption and income inequality. In particular, in nations characterized by weak governance, the consumption of renewable energy correlates with increased income inequality, suggesting early-stage renewable investments may disproportionately benefit capital owners. However, in countries with stronger institutional frameworks, this relationship changes. When the quality of governance surpasses a certain median threshold, using renewable energy helps to close the income inequality gap. The practical implications of these results emphasize that policymakers should not rely solely on green energy to achieve equitable growth. Instead, governments must pair environmental targets with targeted institutional reforms, market entry facilitation, and regulatory transparency to ensure that the financial benefits of the energy transition are distributed fairly among all populations.