Inflation and energy poverty: threshold effect of governance quality in Africa

Abstract

PurposeThe purpose of this study is to test the modulating role and threshold of governance quality in the cost of living–energy poverty nexus.Design/methodology/approachTwo-step System Generalized Methods of Moment empirical model with linear interaction between cost of living and governance quality was estimated. This study used data on 40 African countries over 20 years (2000–2019).FindingsThe paper shows that the conditional effect of inflation on energy poverty is negative. Thus, governance quality acts as a moderator on the relationship between inflation and energy poverty beyond a threshold. The study's principal practical implication is that governance quality reverses inflation's positive unconditional effect on energy poverty, and governance quality may be improved beyond specific policy-defined thresholds to achieve the desired goal of lowering energy poverty. Nonetheless, governance quality at initial stages would not drive the needed reduction in energy poverty unless it goes beyond the threshold of 0.03, 0.02 and 0.07.Research limitations/implicationsThis study recommends that policymakers should initiate policies that would ensure increased access to clean energy.Originality/valueThis study's main contributions are that the authors estimated the threshold beyond which governance quality reverses the adverse impact of inflation on energy poverty. Further, the authors have shown that governance quality is a catalyst to reduce energy poverty.