Financial inclusion and energy poverty nexus in the era of globalization: Role of composite risk index and energy investment in emerging economies

Abstract

Even in the modern era with increasing globalization and technological innovation, the issue of energy poverty is still debatable in many parts of the world. Unlike developed countries, developing countries struggle to satisfy the growing energy demand. To evaluate the role of financial inclusion and its impact on energy poverty in six representative emerging economies including Brazil, China, India, Indonesia, Mexico, and Russia from 2004 to 2019, this paper examines the role of the composite risk index (a combination of political, economic, and financial risk), investment in energy with public-private participation, gross domestic product, human capital, globalization, and renewable energy. This study first constructed a multidimensional index to measure the weighted average energy poverty and composite energy poverty index along with a novel index for financial inclusion. Moreover, this study uses novel panel data approaches such as Westerlund's cointegration and cross-sectionally augmented autoregressive distributed lags model (CS-ARDL). The study established long-run cointegrating relationship between energy poverty and its detereminants, i.e., financial inclusion, globalization, investment in energy, human capital index, income and composite risk index. The empirical results found that financial inclusion, renewable energy electricity, globalisation, income, human capital index and energy investment are the key determinants of energy poverty in emerging economies. Furthermore, financial inclusion is found to curb energy poverty. Human capital index and globalization also help to reduce energy poverty. Given the empirical results of the nexus and impacts of financial inclusion on energy poverty using the multidimensional proxies, the study provides critical implications to researchers and policymakers in mitigating the consequences of energy poverty and the development of financial systems and their co-movement with energy poverty-related issues.