Technological capacity building through energy aid: Empirical evidence from renewable energy sector

Abstract

This study looks at foreign aid as a channel to transfer clean technologies to developing countries, including those with smaller economies. The focus is on the technological knowledge transfer through the technical cooperation of foreign aid. As transferred knowledge accumulates, the recipient country's technological capacity increases. To better understand this accumulating capacity, this study explores the effect of foreign aid as a channel of technology transfer on the recipients’ technological capacity in the renewable energy sector. To investigate the effect of hands-on assistance, the empirical model estimates the long-term effects of foreign-aid disbursements for non-hydro renewable energy (NHRE) projects. I find that foreign aid for technical cooperation in NHRE projects catalyzes investments in NHRE capacity in low-income countries with a long incubation period. The findings confirm that hands-on cooperation, as emphasized by developing countries, contributes to their capacity building, although only in countries with low capacity to begin with. This study contributes to the ongoing discussions on the effectiveness of technology transfer channels for clean energy.