Low-carbon energy strategies and financial development in developing economies: investigating long-run influence of credit and equity market development

Mohd Irfan () and Muhammad Shahbaz
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Mohd Irfan: Indian Institute of Technology (Indian School of Mines) Dhanbad

Mitigation and Adaptation Strategies for Global Change, 2022, vol. 27, issue 4, No 5, 26 pages

Abstract: Abstract Though previous research has focused on the impact of financial development on renewable energy or energy efficiency in developed countries, no study has examined the effect of credit and equity market development on energy efficiency and renewable energy consumption in developing countries. The possibility of any spillover effects of low-carbon energy strategies on each other has also been overlooked. Hence, this study investigates the role of credit and equity market development in influencing energy efficiency and renewable energy consumption for developing economies. The dataset contains a panel of 27 developing economies covering annual data over 2000–2017 for variables of interest, including energy efficiency improvements, renewable energy consumption, development of credit market, and development of equity market. The empirical analysis employs a panel cointegration test to uncover the cointegrating relationship among the variables after controlling the effects of economic growth, technological progress, and urbanization. The panel fully modified ordinary least square technique is used to estimate the long-run effects. The empirical findings show that variables in this study are cointegrated, and the long-run coefficient estimates show that development in the credit market promotes energy efficiency only. However, the development in the equity market promotes both energy efficiency and renewable energy consumption. Energy efficiency and renewable energy consumption create a positive effect on each other. These findings reveal an immediate need for better coordination between financial development and low-carbon energy strategies for developing economies. The transition into a low-carbon energy system cannot ignore the trade-off between energy efficiency and renewable energy.

Keywords: Energy efficiency; Renewable energy consumption; Financial development; Credit market; Equity market; Panel fully modified ordinary least square method; Granger causality test (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11027-022-10007-8

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