IDEAS home Printed from https://ideas.repec.org/a/wly/sustdv/v29y2021i4p583-594.html
   My bibliography  Save this article

Do renewable energy consumption and financial development matter for environmental sustainability? New global evidence

Author

Listed:
  • Dervis Kirikkaleli
  • Tomiwa Sunday Adebayo

Abstract

The present study aims to explore the long‐run and causal effect of financial development and renewable energy consumption on environmental sustainability while controlling technological innovation and economic growth within the global framework. In line with the aim of the study, the fully modified OLS (FMOLS), dynamic OLS (DOLS), canonical cointegrating regression (CCR), Bayer and Hanck cointegration, and frequency‐domain causality tests are employed. Empirical evidence confirms the existence of a long‐run linkage among the variables. The present study also finds that in the long run, global financial development and global renewable energy consumption have a long‐run significant positive effect on environmental sustainability, while economic growth increases carbon emission flaring around the world. Within the global framework, the study, therefore, recommends that in order to increase environmental quality, global policy‐makers should further consider the roles of renewable energy and financial development by implementing reform energy policies in both developed and developing countries.

Suggested Citation

  • Dervis Kirikkaleli & Tomiwa Sunday Adebayo, 2021. "Do renewable energy consumption and financial development matter for environmental sustainability? New global evidence," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(4), pages 583-594, July.
  • Handle: RePEc:wly:sustdv:v:29:y:2021:i:4:p:583-594
    DOI: 10.1002/sd.2159
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/sd.2159
    Download Restriction: no

    File URL: https://libkey.io/10.1002/sd.2159?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Shahbaz, Muhammad & Haouas, Ilham & SBIA, Rashid & Ozturk, Ilhan, 2018. "Financial Development-Environmental Degradation Nexus in the United Arab Emirates: The Importance of Growth, Globalization and Structural Breaks," MPRA Paper 87365, University Library of Munich, Germany, revised 11 Jun 2018.
    2. Gorus, Muhammed Sehid & Aydin, Mucahit, 2019. "The relationship between energy consumption, economic growth, and CO2 emission in MENA countries: Causality analysis in the frequency domain," Energy, Elsevier, vol. 168(C), pages 815-822.
    3. Shahbaz, Muhammad & Hye, Qazi Muhammad Adnan & Tiwari, Aviral Kumar & Leitão, Nuno Carlos, 2013. "Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 25(C), pages 109-121.
    4. Apergis, Nicholas & Payne, James E., 2009. "CO2 emissions, energy usage, and output in Central America," Energy Policy, Elsevier, vol. 37(8), pages 3282-3286, August.
    5. Narayan, Paresh Kumar & Smyth, Russell, 2008. "Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks," Energy Economics, Elsevier, vol. 30(5), pages 2331-2341, September.
    6. Shahbaz, Muhammad & Raghutla, Chandrashekar & Chittedi, Krishna Reddy & Jiao, Zhilun & Vo, Xuan Vinh, 2020. "The effect of renewable energy consumption on economic growth: Evidence from the renewable energy country attractive index," Energy, Elsevier, vol. 207(C).
    7. Hammond, G.P. & Norman, J.B., 2012. "Decomposition analysis of energy-related carbon emissions from UK manufacturing," Energy, Elsevier, vol. 41(1), pages 220-227.
    8. Muhammad Kamran Khan & Muhammad Imran Khan & Muhammad Rehan, 2020. "The relationship between energy consumption, economic growth and carbon dioxide emissions in Pakistan," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-13, December.
    9. Jaforullah, Mohammad & King, Alan, 2015. "Does the use of renewable energy sources mitigate CO2 emissions? A reassessment of the US evidence," Energy Economics, Elsevier, vol. 49(C), pages 711-717.
    10. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    11. Charfeddine, Lanouar, 2017. "The impact of energy consumption and economic development on Ecological Footprint and CO2 emissions: Evidence from a Markov Switching Equilibrium Correction Model," Energy Economics, Elsevier, vol. 65(C), pages 355-374.
    12. Ju, Jiandong & Lin, Justin Yifu & Wang, Yong, 2015. "Endowment structures, industrial dynamics, and economic growth," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 244-263.
    13. Spiegel-Feld, Danielle & Rudyk, Bryce & Philippidis, George, 2016. "Allocating the economic benefits of renewable energy between stakeholders on Small Island Developing States (SIDS): Arguments for a balanced approach," Energy Policy, Elsevier, vol. 98(C), pages 744-748.
    14. Destek, Mehmet Akif & Aslan, Alper, 2017. "Renewable and non-renewable energy consumption and economic growth in emerging economies: Evidence from bootstrap panel causality," Renewable Energy, Elsevier, vol. 111(C), pages 757-763.
    15. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    16. Shahbaz, Muhammad & Solarin, Sakiru Adebola & Mahmood, Haider & Arouri, Mohamed, 2013. "Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis," Economic Modelling, Elsevier, vol. 35(C), pages 145-152.
    17. Panagiotis Fotis & Michael Polemis, 2018. "Sustainable development, environmental policy and renewable energy use: A dynamic panel data approach," Sustainable Development, John Wiley & Sons, Ltd., vol. 26(6), pages 726-740, November.
    18. Ben Jebli, Mehdi & Farhani, Sahbi & Guesmi, Khaled, 2020. "Renewable energy, CO2 emissions and value added: Empirical evidence from countries with different income levels," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 402-410.
    19. Boswijk, H. Peter, 1995. "Efficient inference on cointegration parameters in structural error correction models," Journal of Econometrics, Elsevier, vol. 69(1), pages 133-158, September.
    20. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 353-377.
    21. Salahuddin, Mohammad & Gow, Jeff & Ozturk, Ilhan, 2015. "Is the long-run relationship between economic growth, electricity consumption, carbon dioxide emissions and financial development in Gulf Cooperation Council Countries robust?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 51(C), pages 317-326.
    22. Brunnschweiler, Christa N., 2010. "Finance for renewable energy: an empirical analysis of developing and transition economies," Environment and Development Economics, Cambridge University Press, vol. 15(3), pages 241-274, June.
    23. Bhattacharya, Mita & Awaworyi Churchill, Sefa & Paramati, Sudharshan Reddy, 2017. "The dynamic impact of renewable energy and institutions on economic output and CO2 emissions across regions," Renewable Energy, Elsevier, vol. 111(C), pages 157-167.
    24. Peter Boswijk, H., 1994. "Testing for an unstable root in conditional and structural error correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 37-60, July.
    25. Aviral Kumar Tiwari, 2011. "A structural VAR analysis of renewable energy consumption, real GDP and CO2 emissions: Evidence from India," Economics Bulletin, AccessEcon, vol. 31(2), pages 1793-1806.
    26. Zoundi, Zakaria, 2017. "CO2 emissions, renewable energy and the Environmental Kuznets Curve, a panel cointegration approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 1067-1075.
    27. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    28. Mete Feridun & Hasan Güngör, 2020. "Climate-Related Prudential Risks in the Banking Sector: A Review of the Emerging Regulatory and Supervisory Practices," Sustainability, MDPI, vol. 12(13), pages 1-20, July.
    29. Qi, Tianyu & Zhang, Xiliang & Karplus, Valerie J., 2014. "The energy and CO2 emissions impact of renewable energy development in China," Energy Policy, Elsevier, vol. 68(C), pages 60-69.
    30. Wang, Can & Chen, Jining & Zou, Ji, 2005. "Decomposition of energy-related CO2 emission in China: 1957–2000," Energy, Elsevier, vol. 30(1), pages 73-83.
    31. Zhao, Xiaoli & Ma, Qian & Yang, Rui, 2013. "Factors influencing CO2 emissions in China's power industry: Co-integration analysis," Energy Policy, Elsevier, vol. 57(C), pages 89-98.
    32. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    33. Abbasi, Faiza & Riaz, Khalid, 2016. "CO2 emissions and financial development in an emerging economy: An augmented VAR approach," Energy Policy, Elsevier, vol. 90(C), pages 102-114.
    34. Azlan Amran & Vinod Periasamy & Abdul Hadi Zulkafli, 2014. "Determinants of Climate Change Disclosure by Developed and Emerging Countries in Asia Pacific," Sustainable Development, John Wiley & Sons, Ltd., vol. 22(3), pages 188-204, May.
    35. Al-mulali, Usama & Tang, Chor Foon & Ozturk, Ilhan, 2015. "Estimating the Environment Kuznets Curve hypothesis: Evidence from Latin America and the Caribbean countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 918-924.
    36. Dai, Hancheng & Xie, Xuxuan & Xie, Yang & Liu, Jian & Masui, Toshihiko, 2016. "Green growth: The economic impacts of large-scale renewable energy development in China," Applied Energy, Elsevier, vol. 162(C), pages 435-449.
    37. Solarin, Sakiru Adebola & Al-Mulali, Usama & Musah, Ibrahim & Ozturk, Ilhan, 2017. "Investigating the pollution haven hypothesis in Ghana: An empirical investigation," Energy, Elsevier, vol. 124(C), pages 706-719.
    38. Shahbaz, Muhammad & Kumar Tiwari, Aviral & Nasir, Muhammad, 2013. "The effects of financial development, economic growth, coal consumption and trade openness on CO2 emissions in South Africa," Energy Policy, Elsevier, vol. 61(C), pages 1452-1459.
    39. Saint Akadiri, Seyi & Alola, Andrew Adewale & Akadiri, Ada Chigozie & Alola, Uju Violet, 2019. "Renewable energy consumption in EU-28 countries: Policy toward pollution mitigation and economic sustainability," Energy Policy, Elsevier, vol. 132(C), pages 803-810.
    40. Tomiwa Sunday Adebayo & Demet Beton Kalmaz, 2020. "Ongoing Debate Between Foreign Aid and Economic Growth in Nigeria: A Wavelet Analysis," Social Science Quarterly, Southwestern Social Science Association, vol. 101(5), pages 2032-2051, September.
    41. Apergis, Nicholas & Payne, James E. & Menyah, Kojo & Wolde-Rufael, Yemane, 2010. "On the causal dynamics between emissions, nuclear energy, renewable energy, and economic growth," Ecological Economics, Elsevier, vol. 69(11), pages 2255-2260, September.
    42. Kim, Jeayoon & Park, Kwangwoo, 2016. "Financial development and deployment of renewable energy technologies," Energy Economics, Elsevier, vol. 59(C), pages 238-250.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Charfeddine, Lanouar & Kahia, Montassar, 2019. "Impact of renewable energy consumption and financial development on CO2 emissions and economic growth in the MENA region: A panel vector autoregressive (PVAR) analysis," Renewable Energy, Elsevier, vol. 139(C), pages 198-213.
    2. Muhammad Farhan Bashir & Benjiang MA & Muhammad Shahbaz & Zhilun Jiao, 2020. "The nexus between environmental tax and carbon emissions with the roles of environmental technology and financial development," PLOS ONE, Public Library of Science, vol. 15(11), pages 1-20, November.
    3. Aslan, Alper & Ocal, Oguz & Ozsolak, Baki & Ozturk, Ilhan, 2022. "Renewable energy and economic growth relationship under the oil reserve ownership: Evidence from panel VAR approach," Renewable Energy, Elsevier, vol. 188(C), pages 402-410.
    4. Ulucak, Zübeyde Şentürk & İlkay, Salih Çağrı & Özcan, Burcu & Gedikli, Ayfer, 2020. "Financial globalization and environmental degradation nexus: Evidence from emerging economies," Resources Policy, Elsevier, vol. 67(C).
    5. Acheampong, Alex O., 2019. "Modelling for insight: Does financial development improve environmental quality?," Energy Economics, Elsevier, vol. 83(C), pages 156-179.
    6. Francisco García-Lillo & Eduardo Sánchez-García & Bartolomé Marco-Lajara & Pedro Seva-Larrosa, 2023. "Renewable Energies and Sustainable Development: A Bibliometric Overview," Energies, MDPI, vol. 16(3), pages 1-22, January.
    7. Dervis Kirikkaleli & Hasan Güngör & Tomiwa Sunday Adebayo, 2022. "Consumption‐based carbon emissions, renewable energy consumption, financial development and economic growth in Chile," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 1123-1137, March.
    8. Shahbaz, Muhammad & Shahzad, Syed Jawad Hussain & Ahmad, Nawaz & Alam, Shaista, 2016. "Financial development and environmental quality: The way forward," Energy Policy, Elsevier, vol. 98(C), pages 353-364.
    9. Sun, Huaping & Samuel, Clottey Attuquaye & Kofi Amissah, Joshua Clifford & Taghizadeh-Hesary, Farhad & Mensah, Isaac Adjei, 2020. "Non-linear nexus between CO2 emissions and economic growth: A comparison of OECD and B&R countries," Energy, Elsevier, vol. 212(C).
    10. Mumin Atalay Cetin & Ibrahim Bakirtas, 2020. "The long-run environmental impacts of economic growth, financial development, and energy consumption: Evidence from emerging markets," Energy & Environment, , vol. 31(4), pages 634-655, June.
    11. Balsalobre-Lorente, Daniel & Shahbaz, Muhammad & Roubaud, David & Farhani, Sahbi, 2018. "How economic growth, renewable electricity and natural resources contribute to CO2 emissions?," Energy Policy, Elsevier, vol. 113(C), pages 356-367.
    12. Shahzad, Syed Jawad Hussain & Kumar, Ronald Ravinesh & Zakaria, Muhammad & Hurr, Maryam, 2017. "Carbon emission, energy consumption, trade openness and financial development in Pakistan: A revisit," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 185-192.
    13. AhAtil, Ahmed & Bouheni, Faten Ben & Lahiani, Amine & Shahbaz, Muhammad, 2019. "Factors influencing CO2 Emission in China: A Nonlinear Autoregressive Distributed Lags Investigation," MPRA Paper 91190, University Library of Munich, Germany, revised 02 Jan 2019.
    14. Charfeddine, Lanouar & Ben Khediri, Karim, 2016. "Financial development and environmental quality in UAE: Cointegration with structural breaks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 1322-1335.
    15. Yaping He & Pengfei Sheng & Marek Vochozka, 2017. "Pollution caused by finance and the relative policy analysis in China," Energy & Environment, , vol. 28(7), pages 808-823, November.
    16. Paul Terhemba Iorember & Gideon G. Goshit & Dalis T. Dabwor, 2020. "Testing the nexus between renewable energy consumption and environmental quality in Nigeria: The role of broad‐based financial development," African Development Review, African Development Bank, vol. 32(2), pages 163-175, June.
    17. Kwaku Addai & Sema Yılmaz Genç & Rui Alexandre Castanho & Gualter Couto & Ayhan Orhan & Muhammad Umar & Dervis Kirikkaleli, 2023. "Financial Risk and Environmental Sustainability in Poland: Evidence from Novel Fourier-Based Estimators," Sustainability, MDPI, vol. 15(7), pages 1-19, March.
    18. Khezri, Mohsen & Karimi, Mohammad Sharif & Khan, Y.A. & Abbas, S.Z., 2021. "The spillover of financial development on CO2 emission: A spatial econometric analysis of Asia-Pacific countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 145(C).
    19. Rahman, Mohammad Mafizur & Velayutham, Eswaran, 2020. "Renewable and non-renewable energy consumption-economic growth nexus: New evidence from South Asia," Renewable Energy, Elsevier, vol. 147(P1), pages 399-408.
    20. Husam Rjoub & Jamiu Adetola Odugbesan & Tomiwa Sunday Adebayo & Wing-Keung Wong, 2021. "Sustainability of the Moderating Role of Financial Development in the Determinants of Environmental Degradation: Evidence from Turkey," Sustainability, MDPI, vol. 13(4), pages 1-18, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:sustdv:v:29:y:2021:i:4:p:583-594. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1719 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.