How Does Financial Development Affect Global Energy Security? A Functional Data Analysis

Abstract

ABSTRACT As an important foundation for national economic and social development, the energy sector can be affected by financial developments complexly. Using data for 60 countries from 1995–2019 and functional data analysis (FDA) technique, this study explores the dynamic impact of financial development on energy security. The main results suggest that the direction and extent of energy security influenced by financial developments are not singular. Financial developments have contributed to energy security around 2010 and 2015, and the opposite around 2013 and 2017. In addition, the 2008 financial crisis may lead to a deeper degree of uncertainty in the impact of financial development on energy security thereafter. Further analysis also shows that the dynamic process of the impact differed across regions and across income levels. The impact is more significant in the Americas, Europe, and Asia Pacific, and to a lesser extent in Africa and the Middle East. Meanwhile, lower-middle income countries’ energy security is more volatile to financial developments than countries in other income categories.