Does Good Governance Matter more for Energy Investment? Evidence from Sub-Saharan Africa

This paper examines the relationship between three global priorities: access to energy, good governance, and financing for development. Using the World Governance Indicators (WGI), it finds that while governance matters for raising domestic revenues, its effect on external financing sources is mixed. Good governance, except for political stability, does not appear to matter much for attracting foreign direct investment (FDI) to oil exporting countries but is positively associated with FDI to oil importing countries. In contrast, official development finance (ODA) is positively associated with good governance. The bigger bang for improving governance is at home in the form of increased tax revenues (excluding resource rents). The paper also uses the newly developed Regulatory Indicators for Sustainable Energy (RISE) and finds that improved governance is associated with increased private investment and ODA to the energy sector. In contrast, Chinese investment to the sector appears not to be responsive to changes in governance.