Nexus between Economic Policy Uncertainty and Renewable Energy Consumption in BRIC Nations: The Mediating Role of Foreign Direct Investment and Financial Development

Yongliang Zhang,Ishrat Jahan,Salma Karim,Md Qamruzzaman

doi:10.3390/en14154687

Yongliang Zhang, Ishrat Jahan + Show 2 more

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https://doi.org/10.3390/en14154687

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Abstract

In recent literature, the impact of economic policy uncertainty (EPU) on macro aspects have been investigated, but the aspect of energy, precisely renewable energy still to explore. The motivation of the study is to produce fresh evidence regarding the nexus between EPU and renewable energy consumption (REC) with the mediating role of forcing direct investment (FDI) and financial development (FD) in BRIC nations for the period 1997q1–2018q4. The study applied unit root tests following Ng-Perron and Zivot and Andrews for detecting variable’s stationary properties. The long-run cointegration was evaluated by implementing Bayer, Hanck combined the cointegration test, Bound testing approach, and tBDM test. Both linear and non-linear ARDL were implemented to evaluate long-run and short-run shocks, and directional causality was assessed through a non-granger causality test. Furthermore, the study implemented robustness by implementing fully-modified OLS, dynamic OLS, and canonical cointegrating regression (CCR). Unit root test established the variables are stationary after the first difference; moreover, the Bayer and Hanck cointegration test confirmed the long-run association between EPU, FD, FD, and REC in BRIC nations. Accruing to ARDL estimation, adverse effects running from EPU to REC both in the long run and short run. Furthermore, the positive statistically significant linkage revealed for FDI and FD to REC implies that clean energy integration could be augmented with continual inflows of FDI and development of the financial sector. Model estimation with asymmetric assumption, the study documented asymmetric effects running from EPU, FDI, and FD to renewable energy consumption, especially in the long run. Finally, the directional causality revealed unidirectional causality between REC and EPU, whereas the feedback hypothesis was disclosed for FDI and REC] and FD and REC. Study findings postulated that the role of foreign direct investment and financial development is critically significant because technological advancement and capital investment augment clean energy integration through the application of renewable energy.

Highlights

The transition from conventional energy consumption to renewable energy at the aggregate level has been considered a strategic decision in the process of greenhouse gas (GHG, hereafter) emission [1]
The motivation of this study is to gauge the nexus between economic policy uncertainty and renewable energy consumption in BRIC countries for the period from 1997q1 to 2018q4 with the moderating effects of foreign direct investment and financial development
The long-run cointegration between economic policy uncertainty, foreign direct investment, financial development, and renewable energy consumption was documented by employing the Bayer and Hanck [19] combined cointegration test

Summary

Introduction

The transition from conventional energy consumption to renewable energy at the aggregate level has been considered a strategic decision in the process of greenhouse gas (GHG, hereafter) emission [1]. The output from investment in research and development, i.e., the effects on macro economy positively guided by RE integration in economic activities [2]; in addition, the literature suggests that RE assists in thriving the aggregate output with minimal environmental cost [3]. The growing damage of environmental degradation, with a heavy application of non-renewable energy, intensifies the concern of future consequences for climate change, especially for achieving sustainable development [4]. The recent literature has produced a plethora of empirical studies pertinent to renewable energy and, considering the motivation of respective studies, and we sub-grouped studies into two directions. The role of renewable energy integration in the economy, and the benefits for an economy, have been promoting green energy integration, such as economic growth acceleration, environmental protection cost reduction, financial development, agro-productivity, induced foreign investors. The second line of empirical findings explore the key determents for renewable energy integration and studies reveal several factors, including technological innovation, public debt, government expenditure, environmental policies, and financial integration

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