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The relationship between financial development and renewable energy consumption in South Asian countries

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Abstract

We analyse how financial development and renewable energy consumption are linked in the selected countries of South Asia using data covering from 1990 to 2018. On the indication of cross-sectional dependency among the variables of the models, we apply second-generation panel unit root tests and cointegration tests to check stationarity properties and long-run cointegrating relationships. We find that variables are stationary at the first difference, and long-run cointegration exists. By applying robust heterogeneous and cross-section augmented dynamic estimators, we find that growth in GDP increases renewable energy consumption by about 0.50–1.56%; however, it reduces by 0.01–0.03% after particular thresholds. Furthermore, on average, an increase in financial development reduces the propensity of renewable energy consumption by 0.07–0.15% in the long-run. On the other hand, panel causality results show unidirectional relationships from GDP to financial development and from financial development to renewable energy consumption but not vice versa. We suggest that the selected countries revisit and restructure the renewable energy policy and focus on institutional reforms to strengthen renewable energy development in the upcoming years.

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Data availability

The dataset of different variables generated and/or analysed during analysis are available in the World Development Indicators (WDI) repository. Please follow the link: https://databank.worldbank.org/source/world-development-indicators.

Notes

  1. Even if one or some cross-sections do not show a cointegration relationship, it has been shown that inference from the panel estimations tends to be valid.

  2. We consider autoregressive distributed lag (ARDL) bound test procedure.

  3. We suspect one of the possible reasons behind such an outcome is the relatively smaller country-level data coverage (1990–2018), which is only 28 years.

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  1. North South University, Dhaka, Bangladesh

    Sakib Bin Amin, Farhan Khan & Md Ashfaqur Rahman

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  1. Sakib Bin Amin
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SA generated the idea of the paper, formulated theoretical framework, conducted empirical part, and supervised the paper. FK conducted the empirical part, reviewed literature, and prepared parts of the paper. MdR conducted the empirical part, reviewed literature, and prepared parts of the paper. All authors read and approved the final manuscript.

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Correspondence to Sakib Bin Amin.

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Amin, S.B., Khan, F. & Rahman, M.A. The relationship between financial development and renewable energy consumption in South Asian countries. Environ Sci Pollut Res 29, 58022–58036 (2022). https://doi.org/10.1007/s11356-022-19596-y

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