The Dynamic Impacts of Economic Growth, Financial Globalization, Fossil Fuel, Renewable Energy, and Urbanization on Load Capacity Factor in Mexico

Abstract

This study explores the interplay among economic growth, financial globalization, urbanization, fossil fuel consumption, and renewable energy usage and their combined impact on the load capacity factor in Mexico. This research employs the load capacity factor as a unique measure of ecological health, facilitating a comprehensive ecosystem assessment by sequentially evaluating biocapacity and ecological effects. Using time series data spanning from 1971 to 2018, this study employs the Autoregressive Distributed Lag (ARDL) method to analyze both long-term and short-term dynamics and cointegration. The findings reveal that economic growth, fossil fuel usage, and urbanization reduce Mexico’s load capacity factor, thereby diminishing environmental quality. In contrast, the adoption of renewable energy sources and the influence of financial globalization exhibit positive effects on the load capacity factor over the long and short term. These outcomes remain consistent even when compared with alternative estimation techniques, including dynamic ordinary least squares (DOLS), fully modified least squares (FMOLS), and canonical cointegrating regression (CCR). As a priority, Mexican policymakers should accelerate the transition to renewable energy sources, encourage sustainable urban development, and foster a more ecologically conscious economic agenda. Furthermore, promoting greener technologies can enhance the load capacity and mitigate environmental degradation. Ultimately, Mexico can establish an environment conducive to expanding sustainable investments by encouraging cross-border investments, enabling global trade in financial services, and cultivating greater integration of capital and financial markets.