Chapter Seven - The relationship between financial openness, renewable and nonrenewable energy consumption, CO2 emissions, and economic growth in the Latin American countries: an approach with a panel vector auto regression model

Abstract

The relationship between financial openness, renewable and nonrenewable energy consumption, CO2 emissions, and economic growth was examined in 12 Latin American countries over the period of 1980–2014. The panel vector auto regression (PVAR) model was used. The preliminary tests showed the presence of a high correlation between the consumption of fossil fuels and environmental degradation, low multicollinearity, cross-section dependence, unit roots, fixed effects in the PVAR model, and the need to use the lag length (1) in the PVAR model. The results of PVAR regression showed that the consumption of renewable energy, fossil fuels, CO2 emissions, and financial openness increases economic growth. Moreover economic growth and emissions increase the consumption of renewable energy, while the consumption of fossil fuels and financial openness reduce this kind of source. Economic growth and CO2 emissions increase the consumption of fossil fuels, while the consumption of renewable energy reduces it. In addition, the consumption of fossil fuels and financial openness increase environmental degradation. Economic growth, consumption of renewable energy and fossil fuels, and environmental degradation reduce financial openness. The results of specification tests showed the existence of a unidirectional and bidirectional relationship between the variables of the model and that the empirical findings of this study not only help to advance the existing literature, but also warrant attention from policymakers.