The effect of financial development on renewable energy demand: The case of developing countries


Shahbaz M., Altay Topcu B. , Sümerli Sarıgül S. , Vo X. V.

RENEWABLE ENERGY, vol.178, pp.1370-1380, 2021 (Journal Indexed in SCI Expanded)

  • Publication Type: Article / Article
  • Volume: 178
  • Publication Date: 2021
  • Doi Number: 10.1016/j.renene.2021.06.121
  • Title of Journal : RENEWABLE ENERGY
  • Page Numbers: pp.1370-1380

Abstract

The global economic costs of environmental pollution increase the importance of renewable energy

sources. This paper analyzes the impact of financial development on renewable energy consumption in

34 upper middle income developing countries from 1994 to 2015. The long-term relationship between

variables is estimated by applying Panel Pedroni cointegration and Kao cointegration tests. The long run

effect of financial development on renewable energy consumption is investigated by using Fully-

Modified OLS (FMOLS) approach. The empirical results indicate the presence of long run relationship

between renewable energy consumption and financial development. Moreover, financial development

increases the demand for renewable energy. Economic growth has a negative effect on renewable energy

consumption, but consumer prices have a statistically insignificant impact on renewable energy consumption.

The empirical evidence reveals that financial development triggers in increasing demand for

environmentally friendly energy sources, i.e., renewable energy. Renewable energy consumption reduces

the amount of greenhouse gases in nature as opposed to fossil energy consumption. Therefore, to achieve

sustainable development goals, governments should implement incentives and tax policies that increase

the demand of enterprises for renewable energy resources. In addition, investment opportunities in

renewable energy resources to be created by public-private cooperation via financial arrangements

should be increased.