Abstract
This study explores the influence of carbon intensity of loans issued by financial institutions (CIL) on facilitating energy transition. By analyzing cross-country panel data from 2005 to 2018, we unveil a notable influence of CIL on renewable energy production, taking into account cross-sectional dependence. Our regression analysis, employing panel-corrected standard errors, indicates that a 1% decrease in CIL correlates with a 0.9169% and 0.9189% rise in renewable energy production per capita and per GDP, respectively, along with a 0.1180% growth in renewable energy's share. This effect of promotion is more pronounced in nations with higher developmental levels, lower emission rates, greater banking sector reliance, and increased energy import dependency. Additionally, our study identifies a significant role played by the development of financial institutions in the reduction of CIL. Conversely, the moderating influence of R&D appears less clear. Utilizing the Panel Granger test, we establish a bidirectional causal link between CIL and renewable energy production, which sustains over the long term. Our findings offer valuable insights for policymakers and financial bodies aiming to meet climate objectives.
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