What drives investment in renewable energy resources? Evaluating the role of natural resources volatility and economic performance for China

Abstract

To cope with environmental degradation, countries around the globe are devising policies such as renewable energy, eco innovation and green financing, etc. Investment in renewable energy sources is crucial for achieving development. An increase in investment in renewable energy in the development goals are turn out to be the main concern of countries. This study examines the elements that influence the investment in renewable energy sources, as well as the importance of each aspect in case of China for the period of 1990–2020. We use Bayer-Hanck cointegration and Quantile Regression method to estimate the long run coefficients. To check the causal relationship among variables, this study employs Frequency Domain Causality (FDC) test. The results show that natural resource volatility is negatively related with investment in renewable energy. However, economic performance, technological innovation and energy efficiency have positive impact on investment in renewable energy. From results of quantile regression, it is inferred that as long as the effect of economic performance on investment in renewable energy loses trace of significance, the negative effect of natural resource volatility attains stronger statistical evidence. It implies that the positive impact of economic performance and negative impact of natural resource volatility on IRE changes its significance after a certain threshold level is achieved. There is evidence of uni-directional causality from GDP, TNR, TI and ENEF to IRE in all three runs. The findings of this study have important implications that can also be used by international organizations and other stakeholders in developing policies to improve the environment through renewable energies.