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Financial Markets, Innovations and Cleaner Energy Production in OECD Countries

Md Al Mamun, Kazi Sohag, Muhammad Shahbaz () and Shawkat Hammoudeh

MPRA Paper from University Library of Munich, Germany

Abstract: Using a large sample of 25 Organization for Economic Co-operation and Development (OECD) countries, we provide evidence that the growth of equity and credit markets promotes cleaner energy (biomass renewable energy, non biomass renewable energy, and total bio and non-bio renewable energy) production in those countries. We also find that the 2008 global financial crisis (GFC) adversely affects the production of cleaner energy. Our results are robust to alternative definitions of financial market development, cleaner energy, and controlling for the effect of government subsidy on cleaner energy. By supporting the demand-induced supply of cleaner energy, we demonstrate that the positive and significant effect of financial market development (FMD) on cleaner energy is stronger in countries with higher growth in carbon intensity and a lower availability of fossil fuels than otherwise. Our results also support the argument that financing uncertain projects such as those that produce cleaner energy should be greater in countries with a higher innovation culture than those where financial markets are already accustomed to undertaking risky investments. The overall results are also robust under the conditions of short-run and long-run homogeneity and the cross-sectional dependence in the sample. Policy implications are also provided.

Keywords: Biomass and cleaner energy production; common correlated effects pooled (CCEP); credit and equity markets; global financial crisis; innovation (search for similar items in EconPapers)
JEL-codes: A1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-fmk
Date: 2018-04-01, Revised 2018-04-06
References: View references in EconPapers View complete reference list from CitEc
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