Does renewable energy adaptation, globalization, and financial development matter for environmental quality and economic progress? Evidence from panel of big five (B5) economies

Renewable energy adaptation can play a critical role to halt climate change, although many researchers in the past tried to estimate its effect toward the environment, but the findings are still unclear and complex due to limitation of data and adopted methodologies. Therefore, to overcome the weaknesses, this paper aims to re-investigate the role of renewable energy adaptation, financial development and globalization toward environmental quality and economic progress in leading economies, we call it big five economies (B5) of the world. These economies (USA, China, UK, Germany, and Japan) were chosen based on ranking by the IMF. In this paper, we applied panel techniques for data analysis including panel data unit roots test, padroni cointegration analysis and panel data FMOLS and panel DOLS. Further, to explore country specific results and to ensure the robustness of findings, frequency domain causality test was applied. Results of estimation reveal that renewable energy adaptation mitigate the environmental impact to improve environmental quality and reinforce economic progress in B5 countries. Although, financial development, capital formation, natural resources and globalization improve economic progress, but these factors create adverse consequence for the environmental quality. Similarly, it can be stated that it’s a tradeoff between economy and the environment. Further, the role of trade is found as constructive for environmental quality and economic progress in B5 economies. We believe that the conclusions of our study hold promise for key insights for the policy development.