Institutions and Industrial Policy: The Moderating Effect of Institutions on the Effectiveness of Renewable Energy Support Policies in Attracting Investments: A Comparative Panel Data Analysis

Keelan Carl Jeffrey Larson & Mathis Kai Otto Mathiske

Student thesis: Master thesis


This master’s thesis investigates the impact that economic and political institutions have on the effectiveness of renewable energy support policies and their ability to stimulate renewable energy investment. We employ panel data analysis with Panel Corrected Standard Errors and perform estimation on three groups. The first group comprises 10 developing countries, the second comprises 10 developed countries, and the third comprises all 20 countries, over the period from 2000-2015. In addition to the Index of Economic Freedom (IEF), which acts as a proxy for institutional strength, the variables of interest include four renewable energy support policies: feed-in tariffs, auctions & tenders, tax relief, grants & subsidies, and their interactions with the IEF. The dependent variable is the percentage electricity generated from renewables which proxies renewable investment. Our results indicate that institutions have divergent moderating effects on policy instruments for economies at different developmental stages. For developed economies, stronger institutions significantly depress the effectiveness of tax relief policy instruments, whereas for developing countries their effectiveness is enhanced by stronger institutions. We find the exact opposite to be true for auctions and tenders, where we observe that stronger institutions depress the effectiveness of auctions and tenders for developing economies and enhance their effectiveness for developed economies. We relate this negative effect for developing countries to weaker government integrity and corruption, as well as institutional distance. Conversely, our results suggests that both feed-in tariffs as well as grants and subsidies are not significantly influenced by institutions for either country group in isolation. The primary limitation to this thesis is a lack of granularity in the available data, therefore restricting us from measuring country-specific effects. Despite this, our primary takeaways for academia and policymakers are threefold. First, to expand the underdeveloped body of research regarding renewable energy policy instruments and their relationships with institutions, we find that future work should focus on renewable energy market maturity rather than economic developmental stages. Secondly, we argue that researchers should piggyback on our unique interaction methodology and employ a more granular statistical analysis of institutional sub-factors influencing the effectiveness of different renewable energy support policies. Third, our findings provide valuable insight for policymakers attempting to optimize their country’s renewable energy support policy mix.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2021
Number of pages121
SupervisorsBersant Hobdari