Transmission channels between financial efficiency and renewable energy consumption: Does environmental technology matter in high-polluting economies?

Abstract

An efficient financial sector provides necessary funds and credits for developing environmental technology and the deployment of renewable energy projects that increase consumption. Therefore, we try to explore the role of financial efficiency and environmental technology in renewable energy consumption in high-polluting economies. In this regard, most of the past studies have relied on the linear relationship between financial efficiency, environmental technology, and renewable energy consumption. However, our analysis is based on the non-linear assumption, which allows us to estimate the impact of positive and negative shocks on financial efficiency and environmental technology on renewable energy consumption. The panel NARDL method has been used for analysis, confirming that positive shock in financial institutions, financial market, and eco-innovations promotes renewable energy consumption by 1.322%, 2.664%, and 0.740%. Conversely, the negative shock in financial institutions significantly falls renewable energy consumption by 2.235%. The asymmetric effects of these variables are confirmed in the long run. The short-run NARDL findings show that positive and negative shocks in financial institutions and financial markets have an insignificant impact on renewable energy consumption, whereas positive shock in eco-innovation has a significant positive impact on renewable energy consumption. Therefore, policymakers should focus on both the positive and negative changes while making policies to increase renewable energy consumption in high-polluting economies.