The contribution of different aspects of financial development to renewable energy consumption in E7 countries: The transition to a sustainable future

Abstract

In order to combat climate change, a country must invest in the development of renewable energy sources and the upgrading of its energy infrastructure. Capital is one of the obstacles to the energy revolution because green energy development is often expensive and risky, especially in its infancy. It is imperative to understand how financial development affects renewable energy consumption as well as which aspects of financial development are most essential to its development. This study used Method of Moments Quantile Regression (MMQR) to investigate the impact of different aspects of financial development on renewable energy consumption using panel data from seven emerging (E7) countries from 1991 to 2018. The model is enhanced by controlling for the effects of foreign direct investment, economic growth, real oil prices, and trade openness. In the empirical findings of MMQR, it is confirmed that the influence of independent variables varies among quantiles of renewable energy consumption. Overall, we find that all three facets of financial development (financial development overall, financial markets-related development, and financial institutions-related development) positively impact renewable energy consumption. The results of our study further indicate that although all three aspects of financial development increase renewable energy consumption, but the effect is greater in the case of financial markets-related development. The findings of our empirical study have significant policy implications for the achievement of Sustainable Development Goals.