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Climate finance, institutions and innovation systems in Sub-Saharan Africa
Frank Adu* 
Roshelle Ramfol*
Roshelle Ramfol
Affiliation: College of Accounting Sciences, University of South Africa, Pretoria, South Africa
 0000-0002-4682-2558
Article | Year: 2025 | Pages: 309 - 337 | Volume: 49 | Issue: 2 Received: October 9, 2024 | Accepted: February 20, 2025 | Published online: June 7, 2025
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
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Variable
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Notation
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Measurement
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Source
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Dependent variable
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Innovation
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INNOV
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Innovation output
sub-index (score 0–100)
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WIPO
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Independent variable
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Climate finance
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CF
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Climate-related development finance Commitment (Current
USD thousand)
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OECD
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Mediating variable
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Institutional
quality index
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IQ
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It is computed as an average of Kaufmann’s six indicators
of institutional quality (Regulatory quality, government effectiveness, rule of
law, control of corruption, voice and accountability, political stability, and
lack of violence)
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WDI
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Control variables
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Human capital
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HC
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School enrolment, tertiary (% gross)
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WDI
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GDP per capita
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GDPPC
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GDP per capita (constant 2015 US$)
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WDI
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Government expenditure
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GE
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General government
final consumption expenditure (% of GDP)
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WDI
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Digital infrastructure
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DIFRA
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Mobile cellular
subscriptions (per 100 people), Individuals using the Internet (% of the population),
Fixed telephone subscriptions (per 100 people) and Fixed broadband subscriptions
(per 100 people)
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WDI
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Financial development
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Domestic credit
to private sector (% of GDP)
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WDI
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Note: WIPO, OECD and WDI represent the World Intellectual Property Organization, Organization for Economic Co-operation and Development and World Governance Indicators, respectively. Source: Authors.
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Variable
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Obs.
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Mean
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Std. dev.
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Min.
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Max.
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Measurement unit
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INNO
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276
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22.152
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12.735
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0.300
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71.800
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Index score 0–100
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CF
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275
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43.724
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33.943
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11.000
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209.102
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Current USD thousand
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IQ
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276
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0.502
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0.310
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0.000
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1.000
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Index score 0-1
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GDPPC
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276
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5,669.880
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17,113.00
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262.185
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90,057.03
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US$
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HC
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276
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89.880
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72.415
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1.000
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222
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%
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IFRAI
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276
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0.525
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0.236
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0.000
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0.992
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Index score 0-1
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GE
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276
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15.233
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5.837
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6.697
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36.143
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%
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FD
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276
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26.672
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27.283
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0.000
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128.838
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%
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Note: INNOV, CF, IQ, GDPPC, HC, IFRAD, GE and FD indicate innovation, climate finance, institutional quality index, gross domestic product per capita, human capital, infrastructure development, government expenditure and financial development. Source: Authors.
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Variables
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(1)
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(2)
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(3)
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(4)
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(5)
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(6)
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(7)
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(8)
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(1) INNO
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1.000
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(2) CF
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0.031
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1.000
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(3) IQ
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0.056
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-0.036
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1.000
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(4) GDPPC
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0.696
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0.082
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-0.114
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1.000
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(5) HC
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0.283
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0.036
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0.029
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0.285
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1.000
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(6) IFRAI
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0.022
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0.023
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-0.101
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0.157
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0.168
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1.000
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(7) GE
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-0.069
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0.026
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-0.060
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-0.086
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0.085
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0.050
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1.000
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(8) FD
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0.207
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0.041
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0.052
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0.060
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0.042
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0.154
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0.307
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1.000
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Variable
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CD test
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Prob. value
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INNOV
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16.921
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0.000
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CF
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9.680
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0.000
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IQ
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2.348
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0.019
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GDPPC
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21.806
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0.000
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HC
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4.205
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0.000
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INFRAI
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11.204
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0.000
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GE
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2.088
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0.037
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FD
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8.552
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0.000
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Source: Authors.
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CIPS test
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CADF test
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Variable
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I(0)
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I(1)
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I(0)
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I(1)
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INNOV
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-1.771
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-2.692***
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-1.012
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-2.610***
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CF
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-2.455**
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-6.279***
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-1.925*
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-2.273**
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IQ
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-2.311**
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-3.044***
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-1.954*
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-2.740***
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GDPPC
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-1.545
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-2.267**
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-2.081**
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-2.610***
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HC
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-1.493
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-2.938**
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-0.992
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-2.610***
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INFRAI
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-2.645***
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-4.061***
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-2.034**
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-2.475***
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GE
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-2.129*
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-3.533***
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-1.450
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-2.394***
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FD
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-0.885
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-2.180**
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-0.702
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-2.611***
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Note: ***, ** and * represent significant at 1%, 5% and 10% significance level. *, **, *** represent
stationarity. Source: Authors.
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Variable
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Coefficient
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System-GMM
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Difference GMM
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lnINNOVt-1
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-0.306***
(0.069)
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-0.184*
(0.108)
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lnCF
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-1.003***
(0.376)
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-0.438**
(0.227)
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IQ
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3.039**
(1.334)
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1.430*
(0.775)
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lnCF_IQ
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2.074**
(0.757)
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0.974*
(0.580)
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lnGDPPC
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-0.980
(1.339)
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1.413
(4.054)
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HC
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0.011**
(0.004)
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0.003
(0.005)
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IFRAD
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-1.874*
(1.084)
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-0.918
(1.039)
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lnGE
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-10.193**
(4.511)
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-1.441
(2.577)
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lnFD
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5.289
(3.899)
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0.847
(3.372)
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Net/marginal effect
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3.039**
(1.3339)
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1.430*
(0.775)
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Constant
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19.887
(12.593)
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AR(2) test statistic
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-0.67
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-0.88
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AR(2) P-value
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0.505
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0.377
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Hansen test statistic
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4.94
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5.89
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Hansen P-value
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0.895
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0.751
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No. groups
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22
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22
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No. instruments
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20
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20
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Source: Authors.
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Percentile
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Percentile values
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System-GMM
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Difference GMM
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10
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0.0212
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-0.959**
(0.361)
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-0.418
(0.316)
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25
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0.2612
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-0.461**
(0.216)
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-0.184
(0.184)
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50
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0.509
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0.053
(0.172)
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0.058
(0.084)
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75
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0.762
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0.577*
(0.291)
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0.304**
(0.148)
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90
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0.922
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0.910**
(0.397)
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0.460**
(0.232)
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Note: ** and * represent significance at 5% and 10%, respectively. Source: Authors.
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Variables
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W-bar-Stat.
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Z-bar-Stat.
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Prob. value
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Conclusion
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INNO ˃ CF
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2.758
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1.818
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0.069*
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↔
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CF ˃ INNOV
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3.836
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4.403
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0.000***
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INNO ˃ IQ
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7.047
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12.102
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0.000***
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↔
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IQ ˃ INNOV
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4.472
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5.927
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0.000***
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CF ˃ IQ
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3.366
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3.275
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0.001***
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↔
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IQ ˃ CF
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5.222
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7.725
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0.000***
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Note: *** and * denote significance at 1% and 10% levels, respectively; > denotes the direction of causality; ↔ signifies a bidirectional causality, and → denotes a one-way causality. Source: Authors.
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Coefficient
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Variable
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Model 1
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Model 2
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Model 3
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lnINNOVt-1
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-0.253***
(0.059)
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-0.273***
(0.081)
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-0.005
(0.012)
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SQCF
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-1.439*
(0.694)
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IQ
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1.435**
(0.608)
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1.541**
(0.681)
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lnCF
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-1.099*
(0.570)
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-0.052
(0.749)
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SQIQ
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3.463*
(1.871)
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lnCF_IQ
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0.805*
(0.454)
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2.2529**
(1.078)
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SQCF_SQIQ
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-3.085**
(1.095)
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lnGDPPC
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-1.383
(1.549)
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-1.369
(1.212)
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2.241**
(0.788)
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HC
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0.010
(0.005)
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0.015**
(0.004)
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0.005
(0.005)
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IFRAD
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-1.464
(1.167)
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-0.889
(1.385)
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0.046
(0.439)
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lnGE
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-9.912*
(4.972)
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-11.830**
(4.987)
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6.330***
(2.126)
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lnFD
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6.869*
(3.368)
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5.634
(3.454)
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-7.057***
(1.295)
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Net/marginal effect
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1.435**
(0.608)
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3.463*
(1.871)
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Constant
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18.732
(16.225)
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25.500
(17.185)
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-8.477
(7.984)
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AR(2) test statistic
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-1.06
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-0.61
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0.20
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AR(2) P-value
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0.290
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0.545
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0.845
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Hansen test statistic
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6.88
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5.56
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10.34
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Hansen P-value
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0.737
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0.724
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0.500
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No. groups
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22
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22
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22
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No. instruments
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20
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20
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20
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vv
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Variable
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Coefficient
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Model 1 (Corruption)
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Model 2 (Political stability)
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lnINNOVt-1
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-0.0224***
(0.0077)
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-0.0282***
(0.0082)
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lnCF
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0.2341*
(0.1299)
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0.2872*
(0.1648)
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IQ
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0.9704
(1.4483)
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12.7816***
(4.0337)
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lnCF_IQ
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0.3464*
(0.1786)
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0.0278
(0.9146)
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lnGDPPC
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-2.4345
(1.5679)
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-3.2546
(1.6244)
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HC
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-0.0007
(0.0045)
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0.0045
(0.0029)
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IFRAD
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0.9363
(0.8260)
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1.2717**
(0.5709)
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lnGE
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-6.5124
(3.8685)
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-6.6579*
(3.7287)
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lnFD
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0.5256
(1.5001)
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2.9371
(2.0951)
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Constant
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35.6356**
(17.7762)
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36.4524**
(17.1689)
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AR(2) Test statistic
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-0.91
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-0.88
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AR(2) P-value
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0.362
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0.379
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Hansen test statistic
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6.43
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7.04
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Hansen P-value
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0.696
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0.633
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No. groups
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22
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22
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No. instruments
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19
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19
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Figure 1Trend analysis of climate finance among SSA countries DISPLAY Figure
Table 1Variable description DISPLAY Table
Table 2Descriptive statistics DISPLAY Table
Figure 2Scatter plot between climate finance, institutional quality and innovation in SSA DISPLAY Figure
Table 3Pairwise correlation among the variables DISPLAY Table
Table 4Weakly cross-sectional dependency test DISPLAY Table
Table 5Unit root test results DISPLAY Table
Table 6Effect of climate finance and institutional quality on innovation in SSA DISPLAY Table
Table 7Marginal effect of climate finance on innovation DISPLAY Table
Table 8Dumitrescu-Hurlin panel causality test results DISPLAY Table
Table A1Effect of climate finance and institutional quality on innovation in SSA (non-linear system-GMM results) DISPLAY Table
Table A2Effect of climate finance and institutional quality on innovation in SSA (system-GMM results) DISPLAY Table
* The authors would like to thank two anonymous reviewers for their valuable comments.
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June, 2025
II/2025
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