Does financial development promote renewable energy consumption in the USA? Evidence from the Fourier-wavelet quantile causality test

Abstract

To achieve environmental sustainability, it is important to change the energy pattern from dirty fossil fuels to renewable-clean energy sources. For this transition, countries should use their financial resources effectively and efficiently. Against this background, this study aims to examine the impact of financial development on renewable energy consumption in the United States over the period 1980–2019, considering urbanization, economic structure, and economic growth as control variables. The study contributes to the existing literature by testing the effect of six sub-indicators, namely efficiency, depth, and accessibility of financial markets and institutions on renewable energy consumption. This is done using the novel Fourier quantile causality test with wavelet transforms. The empirical results show that financial development encourages renewable energy consumption at high quantiles in the medium- and long-run. Moreover, depth and access to financial markets are the two most important factors that promote renewable energy consumption. Based on the overall findings, the study suggests that the United States government should adopt policies that improve the depth and access to financial markets rather than financial institutions to support green growth.