Electricity Consumption and Financial Development: Evidence from Selected EMEs—A Panel Autoregressive Distributed Lag–Pooled Mean Group Approach

Collen Mugodzva () and Godfrey Marozva
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Collen Mugodzva: Department of Finance, Risk Management and Banking, University of South Africa, Pretoria 0003, South Africa
Godfrey Marozva: Department of Finance, Risk Management and Banking, University of South Africa, Pretoria 0003, South Africa

Energies, 2025, vol. 18, issue 22, 1-16

Abstract: This study explores the relationship between electricity consumption and financial development in 20 emerging market economies (EMEs) from 2000 to 2020. Employing the panel ARDL–PMG estimator and a two-step system GMM to address endogeneity, we identify a significant positive long-run cointegrating relationship, where electricity consumption fosters financial development. The estimated error correction term suggests a stable equilibrium, with deviations corrected at a 29% annual rate, in the short-run adjustment. These results underscore the significance of targeted energy investments in driving financial market growth. Policies promoting grid action, renewable integration, and innovative financing tools, such as green bonds, can align electricity expansion with financial stability objectives. By incorporating recent global disruptions and applying advanced econometric methods, this study provides updated empirical evidence and actionable policy insights on the electricity–finance nexus in EMEs.

Keywords: electricity consumption; financial development; emerging market economies (EMEs); panel ARDL–PMG; two-step system GMM; long-run cointegration; resource diversion effect; energy–finance nexus; grid modernization; renewable energy integration (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2025
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