Effects of digitalization on energy security risk: do financial development and environmental trade matter?

Abstract

Trade in environmental goods and financial development may harness factors such as green investment, technological development, and renewable energy production, which are crucial in reducing energy security risks by diversifying energy sources. However, not many empirics have shed light on the impact of digitalization, environmental trade, and financial development on energy security risks in top energy-consuming countries. To fill this vacuum, this study intends to investigate the influence of digitalization, environmental trade, and financial development on energy security risk in top energy-consuming countries from 2003 to 2021. The study employs the 2SLS and GMM estimates for empirical estimation of top energy-consuming developed and developing economies. The results show that ICT negatively affects energy security risks in developed economies. The findings of the analysis also suggest that environmental trade and financial development cause energy security risks to be reduced in both developed and developing economies. Likewise, the energy security risks in both developed and developing nations are mitigated by ICT, GDP, carbon emissions, and renewable energy production. In contrast, the energy security risks are escalated by the rise in natural resource rents. In order to fully capitalize on the potential advantages of these elements and eventually ensure a more sustainable and secure energy future, governments, businesses, and financial institutions must work together.