Foreign Direct Investment, Stock Market Development, and Renewable Energy Consumption: Case Study of Iran

Abstract

Concerning environmental pollution issues derived from fossil energy consumption, the application of renewable energies plays an important role in countries, especially in their energy sector policymaking. Since determining the relationship between different variables and renewable energy not only has significant policy applications in energy sector but also is necessary in achieving sustainable development goals, this study assesses the impact of effective factors on the development of renewable energy consumption in Iran with emphasis on the role of foreign direct investment (FDI) and financial sector development (especially stock market development). This study applies Auto-Regressive Distributed Lag (ARDL) bounding test method over the period of 1978-2016. The research findings show that there is a causal relationship between foreign direct investment and the stock market and renewable energy consumption in Iran such that the increase of foreign direct investment and stock market development will increase the consumption of renewable energies in Iran. On the other hand, a growth in renewable energies consumption will significantly reduce CO2 emission in the long run. Besides, increasing FDI and stock market development will raise the economic growth of a country and, in return, increase CO2 emission.