Financial development and development of renewable energy technologies: A comparison of developing and developed countries

Abstract

Greenhouse gas emissions are a global concern, and many countries around the world are looking for alternative traditional sources of hydrocarbon energy with economic and environ- mental benefits, including considering the effects of rising oil prices and their subsequent shocks, increasing energy security, and reducing consumption of fossil fuels. The effective role of renewable energy in sustainable development, reducing greenhouse gases and increasing energy security on the one hand, and the necessity of assigning major financial resources to renewable energy projects on the other hand, double the importance of financial improve- ment in the development of renewable energy sources. Due to the importance of this issue, using a panel data model, the present study examines the impact of financial development in the stock market, credit market and total financial markets on the development of renewable energy technology in two groups of selected developed and developing countries during the years 2000-2018. According to the results, financial development has a significant positive impact on the development of renewable energy technology. Due to the nature of this type of energy, it can have multiple environmental benefits as well. Furthermore, in this regard, in the selected developed countries, the improved financial market (credit and stock markets) has a positive effect on the development of the annual installed capacity of renewable energy. How- ever, in the selected developing countries, development in financial market has a positive effect on the deployment of renewable energy as well. Based on the coefficients in two re- gression models, credit market improvement has a greater effect on the development of the installed capacity of renewable energy technologies in developing countries rather than in developed countries. Also, the overall financial index indicates that financial development has a greater effect on deployment of renewable energies in developed countries rather than in developing countries. JEL classification: G2, Q43, C23