Energy Efficiency and Carbon Emissions in Developed and Developing Economies: Investigating the Moderating Role of Financial Development

Mohd Irfan (), Bamadev Mahapatra () and Raj Kumar Ojha ()
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Mohd Irfan: Rajiv Gandhi Institute of Petroleum Technology (RGIPT)
Bamadev Mahapatra: KIIT Deemed to be University
Raj Kumar Ojha: Jaipuria Institute of Management Lucknow

Journal of Quantitative Economics, 2023, vol. 21, issue 2, No 9, 437-455

Abstract: Abstract There is an on-going debate on whether energy efficiency improvements contribute to mitigating carbon emissions in the long run. This is possible because of rebound effects, that is, energy efficiency improvements often reduce energy cost and lead to increase in energy consumption. The present study contributes to this discussion by examining the impact of energy efficiency gains on carbon emissions while considering financial development as a moderating factor in determining the extent of rebound effects. The data used is a sample of 28 developed and 27 developing economies observed between 1992 and 2017. Two dimensions of financial development are considered in the analysis: development in financial institutions and development in financial markets. Econometric analysis conducted in this study estimates a panel autoregressive distributed lag model relying on an augmented Environmental Kuznets Curve context. The results specify that in the long-run, development in financial markets adversely moderates the effect of energy efficiency improvements on carbon emissions in developed economies. Whereas development in financial institutions adversely moderates the effect of energy efficiency improvements on carbon emissions in developing economies. These findings are novel and thus provide an additional understanding of the distinctive moderating roles of dimensions of financial development across developed and developing economies.

Keywords: Energy efficiency; Financial development dimensions; Developed economies; Developing economies; Panel ARDL (search for similar items in EconPapers)
JEL-codes: G1 G2 Q4 Q42 Q5 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s40953-023-00346-x

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