Does energy related aid affect emissions? Evidence from a global dataset

Donor countries have been using international aid in the field of energy for at least three decades now. The stated objective of this policy is to reduce emissions and promote sustainable development in the global south. In spite of the widespread use of this policy tool,very little is known about its effect on emissions. In this paper we perform an empirical audit of the effectiveness of energy related aid in tackling CO2 and SO2 emissions. Using a global panel dataset covering 128 countries over the period 1971 to 2011 and estimating a parsimonious model using the Anderson and Hsiao estimator we do not find any evidence of a systematic effect of energy related aid on emissions. We also find that the non-effect is not conditional on institutional quality or level of income. Countries located in Europe and Central Asia do better than others in utilising this aid to reduce CO2 emissions. Our results are robust after controlling for the Environmental Kuznets Curve, country fixed effects, country specific trends, and time varying common shocks.